UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-2979
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
Delaware 41-0449260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 1-800-411-4932
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Consolidated Statement of Income.................................. 2
Consolidated Balance Sheet........................................ 3
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Income......................................... 4
Consolidated Statement of Cash Flows.............................. 5
Notes to Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A)
Summary Financial Data............................................ 15
Overview.......................................................... 16
Operating Segment Results......................................... 21
Earnings Performance.............................................. 23
Net Interest Income.............................................. 23
Noninterest Income............................................... 26
Noninterest Expense.............................................. 27
Income Taxes..................................................... 31
Earnings/Ratios Excluding Goodwill and Nonqualifying CDI......... 32
Balance Sheet Analysis............................................ 33
Securities Available for Sale.................................... 33
Loan Portfolio................................................... 34
Nonaccrual and Restructured Loans and Other Assets............... 35
Loans 90 Days Past Due and Still Accruing..................... 37
Allowance for Loan Losses........................................ 38
Interest Receivable and Other Assets............................. 39
Deposits......................................................... 40
Capital Adequacy/Ratios.......................................... 41
Derivative Financial Instruments................................. 42
Liquidity and Capital Management................................. 43
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 44
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 45
SIGNATURE................................................................. 48
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PART I--FINANCIAL INFORMATION
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
-------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
--------------------- ---------------------
(in millions, except per share amounts) 1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Securities available for sale $ 586 $ 424 $ 1,612 $ 1,330
Mortgages held for sale 198 230 671 609
Loans held for sale 80 93 280 274
Loans 2,725 2,702 7,912 8,046
Other interest income 52 79 150 199
-------- -------- -------- --------
Total interest income 3,641 3,528 10,625 10,458
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 679 788 2,075 2,340
Short-term borrowings 226 195 635 558
Long-term debt 338 266 911 804
Guaranteed preferred beneficial interests in Company's
subordinated debentures 16 16 45 67
-------- -------- -------- --------
Total interest expense 1,259 1,265 3,666 3,769
-------- -------- -------- --------
NET INTEREST INCOME 2,382 2,263 6,959 6,689
Provision for loan losses 240 307 770 921
-------- -------- -------- --------
Net interest income after provision for loan losses 2,142 1,956 6,189 5,768
-------- -------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts 385 356 1,096 993
Trust and investment fees and commissions 317 267 932 794
Credit card fee revenue 138 136 395 384
Other fees and commissions 258 241 763 695
Mortgage banking 318 275 969 854
Insurance 95 73 299 278
Net venture capital gains 162 4 287 116
Net (losses) gains on securities available for sale (2) 76 19 161
Other 138 193 590 595
-------- -------- -------- --------
Total noninterest income 1,809 1,621 5,350 4,870
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries 776 730 2,251 2,132
Incentive compensation 124 164 393 449
Employee benefits 208 167 624 543
Equipment 193 192 566 572
Net occupancy 205 188 576 564
Goodwill 106 108 314 317
Core deposit intangible 49 58 151 183
Net losses (gains) on dispositions of premises and equipment 6 7 (5) 55
Other 751 733 2,254 2,282
-------- -------- -------- --------
Total noninterest expense 2,418 2,347 7,124 7,097
-------- -------- -------- --------
INCOME BEFORE INCOME TAX EXPENSE 1,533 1,230 4,415 3,541
Income tax expense 571 488 1,638 1,397
-------- -------- -------- --------
NET INCOME $ 962 $ 742 $ 2,777 $ 2,144
-------- -------- -------- --------
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 953 $ 733 $ 2,751 $ 2,118
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER COMMON SHARE $ .58 $ .45 $ 1.67 $ 1.31
-------- -------- -------- --------
-------- -------- -------- --------
DILUTED EARNINGS PER COMMON SHARE $ .57 $ .45 $ 1.65 $ 1.29
-------- -------- -------- --------
-------- -------- -------- --------
DIVIDENDS DECLARED PER COMMON SHARE $ .20 $ .185 $ .585 $ .515
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares outstanding 1,648.6 1,617.3 1,649.0 1,614.4
-------- -------- -------- --------
-------- -------- -------- --------
Diluted average common shares outstanding 1,667.1 1,640.7 1,667.9 1,637.3
-------- -------- -------- --------
-------- -------- -------- --------
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WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
----------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions, except shares) 1999 1998 1998
----------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 12,011 $ 12,731 $ 10,985
Federal funds sold and securities purchased
under resale agreements 1,556 1,517 1,950
Securities available for sale 36,906 31,997 32,210
Mortgages held for sale 9,850 19,770 15,469
Loans held for sale 4,661 5,322 5,058
Loans 114,709 107,994 107,692
Allowance for loan losses 3,167 3,134 3,170
-------- -------- --------
Net loans 111,542 104,860 104,522
-------- -------- --------
Mortgage servicing rights 4,341 3,080 2,725
Premises and equipment, net 3,124 3,130 3,279
Core deposit intangible 1,334 1,510 1,555
Goodwill 7,620 7,664 7,758
Interest receivable and other assets 14,115 10,894 10,352
-------- -------- --------
Total assets $207,060 $202,475 $195,863
-------- -------- --------
-------- -------- --------
LIABILITIES
Noninterest-bearing deposits $ 41,872 $ 46,732 $ 40,951
Interest-bearing deposits 89,685 90,056 89,000
-------- -------- --------
Total deposits 131,557 136,788 129,951
Short-term borrowings 19,248 15,897 17,570
Accrued expenses and other liabilities 8,377 8,537 8,616
Long-term debt 24,911 19,709 18,486
Guaranteed preferred beneficial interests in
Company's subordinated debentures 785 785 682
STOCKHOLDERS' EQUITY
Preferred stock 560 547 552
Unearned ESOP shares (100) (84) (90)
-------- -------- --------
Total preferred stock 460 463 462
Common stock - $1-2/3 par value, authorized
4,000,000,000 shares; issued 1,666,095,265 shares,
1,661,392,590 shares and 1,635,821,810 shares 2,777 2,769 2,726
Additional paid-in capital 8,769 8,673 7,921
Retained earnings 10,625 9,045 9,552
Cumulative other comprehensive income 242 463 462
Notes receivable from ESOP (1) (3) (4)
Treasury stock - 16,331,628 shares, 17,334,787 shares
and 15,309,106 shares (690) (651) (561)
-------- -------- --------
Total stockholders' equity 22,182 20,759 20,558
-------- -------- --------
Total liabilities and stockholders' equity $207,060 $202,475 $195,863
-------- -------- --------
-------- -------- --------
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WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
-------------------------------------------------------------------------------------------------------------
Unearned Additional
Number of Preferred ESOP Common paid-in
(in millions, except shares) shares stock shares stock capital
-------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $543 $(80) $2,718 $8,126
---- ---- ------ ------
Comprehensive income
Net income
Other comprehensive income, net of tax:
Translation adjustments
Unrealized gains (losses) on securities
available for sale arising during the year
Reclassification adjustment for (gains) losses
on securities available for sale included
in net income
Total comprehensive income
Common stock issued 10,585,434 7 142
Common stock issued for acquisitions 16,002,900 25 53
Common stock repurchased 27,730,007 (24) (406)
Preferred stock issued to ESOP 35,000 35 (37) 2
Preferred stock released to ESOP 27 (1)
Preferred stock (25,573) converted to common shares 661,993 (26) 3
Preferred stock dividends
Common stock dividends
Cash payments received on
notes receivable from ESOP 2
Increase in Rabbi trust assets (classified as treasury stock)
---- ---- ------ ------
Net change 9 (10) 8 (205)
---- ---- ------ ------
BALANCE SEPTEMBER 30, 1998 $552 $(90) $2,726 $7,921
---- ---- ------ ------
---- ---- ------ ------
BALANCE DECEMBER 31, 1998 $547 $(84) $2,769 $8,673
---- ---- ------ ------
Comprehensive income
Net income
Other comprehensive income, net of tax:
Translation adjustments
Unrealized gains (losses) on securities
available for sale arising during the year
Reclassification adjustment for (gains) losses
on securities available for sale included
in net income
Total comprehensive income
Common stock issued 17,258,229 82
Common stock issued for acquisitions 6,185,330 8 11
Common stock repurchased 19,288,479
Preferred stock issued to ESOP 75,000 75 (80) 5
Preferred stock released to ESOP 64 (4)
Preferred stock (60,165) converted to
common shares 1,550,754 (62) 2
Preferred stock dividends
Common stock dividends
Cash payments received on
notes receivable from ESOP
Increase in Rabbi trust assets (classified as treasury stock)
---- ---- ------ ------
Net change 13 (16) 8 96
---- ---- ------ ------
BALANCE SEPTEMBER 30, 1999 $560 $(100) $2,777 $8,769
---- ---- ------ ------
---- ---- ------ ------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Notes Cumulative
receivable other Total
Retained from Treasury comprehensive stockholders'
(in millions, except shares) earnings ESOP stock income equity
--------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $8,292 $(10) $(275) $ 464 $19,778
------ ---- ----- ----- -------
Comprehensive income
Net income 2,144 2,144
Other comprehensive income, net of tax:
Translation adjustments (2) (2)
Unrealized gains (losses) on securities
available for sale arising during the year 100 100
Reclassification adjustment for (gains) losses
on securities available for sale included
in net income (100) (100)
Total comprehensive income 2,142
Common stock issued (145) 59 63
Common stock issued for acquisitions 12 210 300
Common stock repurchased (514) (944)
Preferred stock issued to ESOP --
Preferred stock released to ESOP 26
Preferred stock (25,573) converted to common shares 23 --
Preferred stock dividends (26) (26)
Common stock dividends (725) (725)
Cash payments received on
notes receivable from ESOP 6 8
Increase in Rabbi trust assets (classified
as treasury stock) (64) (64)
------ ---- ----- ----- -------
Net change 1,260 6 (286) (2) 780
------ ---- ----- ----- -------
BALANCE SEPTEMBER 30, 1998 $9,552 $(4) $(561) $ 462 $20,558
------ ---- ----- ----- -------
------ ---- ----- ----- -------
BALANCE DECEMBER 31, 1998 $9,045 $(3) $(651) $ 463 $20,759
------ ---- ----- ----- -------
Comprehensive income
Net income 2,777 2,777
Other comprehensive income, net of tax:
Translation adjustments 3 3
Unrealized gains (losses) on securities
available for sale arising during the year (212) (212)
Reclassification adjustment for (gains) losses
on securities available for sale included
in net income (12) (12)
------
Total comprehensive income 2,556
Common stock issued (201) 640 521
Common stock issued for acquisitions (6) 54 67
Common stock repurchased (777) (777)
Preferred stock issued to ESOP --
Preferred stock released to ESOP 60
Preferred stock (61,867) converted to
common shares 60 --
Preferred stock dividends (26) (26)
Common stock dividends (964) (964)
Cash payments received on
notes receivable from ESOP 2 2
Increase in Rabbi trust asset (classified as treasury stock (16) (16)
------ ---- ----- ----- -------
Net change 1,580 2 (39) (221) 1,423
------ ---- ----- ----- -------
BALANCE SEPTEMBER 30, 1999 $10,625 $(1) $(690) $242 $22,182
------ ---- ----- ----- -------
------ ---- ----- ----- -------
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WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------
Nine months ended Sept. 30,
----------------------------------
(in millions) 1999 1998
-----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,777 $ 2,144
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 770 921
Depreciation and amortization 1,492 1,646
Securities available for sale gains (19) (161)
Gains on sales of mortgages held for sale (228) (306)
Gains on sales of loans (32) (48)
Gains on dispositions of operations (102) (89)
Release of preferred shares to ESOP 60 26
Net (increase) decrease in trading assets (518) 59
Net increase in accrued interest receivable (141) (86)
Net increase in accrued interest payable 5 97
Originations of mortgages held for sale (69,316) (75,374)
Proceeds from sales of mortgages held for sale 78,748 69,674
Net increase in loans held for sale (560) (564)
Other assets, net 151 (98)
Other accrued expenses and liabilities, net (66) 1,242
------- --------
Net cash provided (used) by operating activities 13,021 (917)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales 6,979 8,105
Proceeds from prepayments and maturities 6,485 7,266
Purchases (19,208) (18,286)
Net (cash paid for) acquired from acquisitions (161) 36
Net increase in banking subsidiaries' loans resulting from originations
and collections (3,461) (874)
Proceeds from sales (including participations) of banking
subsidiaries' loans 1,691 1,237
Purchases (including participations) of banking subsidiaries' loans (1,211) (97)
Principal collected on nonbank subsidiaries' loans 4,221 5,592
Nonbank subsidiaries' loans originated (6,590) (6,441)
(Cash paid for) proceeds on dispositions of operations (721) 473
Proceeds from sales of foreclosed assets 145 246
Net increase in federal funds sold and securities purchased
under resale agreements (39) (901)
Other, net (3,140) (633)
------- --------
Net cash used by investing activities (15,010) (4,277)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (5,949) 35
Net increase in short-term borrowings 3,205 3,911
Proceeds from issuance of long-term debt 11,958 3,688
Repayment of long-term debt (6,727) (2,638)
Repayment of guaranteed preferred beneficial interests
in Company's subordinated debentures -- (617)
Proceeds from issuance of common stock 588 187
Repurchase of common stock (777) (944)
Net decrease in notes receivable from ESOP 2 8
Payment of cash dividends on preferred and common stock (990) (751)
Other, net (41) 219
------- --------
Net cash provided by financing activities 1,269 3,098
------- --------
NET CHANGE IN CASH AND DUE FROM BANKS (720) (2,096)
Cash and due from banks at beginning of period 12,731 13,081
------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $12,011 $ 10,985
------- --------
------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,637 $ 3,672
Income taxes $ 666 $ 946
Noncash investing and financing activities:
Transfers from loans to foreclosed assets $ 175 $ 178
Transfers from securities available for
sale to trading assets $ 1,132 $ --
Transfers from loans held for sale to loans $ 1,221 $ --
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WELLS FARGO & COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS COMBINATIONS
On November 2, 1998, Norwest Corporation changed its name to "Wells Fargo & Company" upon the merger (the Merger) of the former Wells Fargo & Company (the former Wells Fargo) into a wholly-owned subsidiary of Norwest Corporation. Norwest Corporation as it was before the Merger is referred to as the former Norwest. Wells Fargo & Company together with its subsidiaries are referred to as the Company.
Under the terms of the Merger agreement, stockholders of the former Wells Fargo received 10 shares of common stock of the Company for each share of common stock owned. Each share of former Wells Fargo preferred stock was converted into one share of the Company's preferred stock. These shares rank on parity with the Company's other shares of preferred stock as to dividends and upon liquidation. Each outstanding and unexercised option granted by the former Wells Fargo was converted into an option to purchase common stock of the Company based on the agreed-upon exchange ratio.
The Merger was accounted for as a pooling of interests and, accordingly, the information included in the financial statements presents the combined results as if the Merger had been in effect for all periods presented. Certain amounts in the financial statements for prior years have been reclassified to conform with the current financial statement presentation.
As a condition to the Merger, the Company was required by regulatory agencies to divest stores in Arizona and Nevada having total deposits of approximately $1 billion and total loans of approximately $100 million. As a result of these sales, which were completed in April 1999, $104 million of pretax gains were included in noninterest income as gains on dispositions of operations.
In connection with the Merger, the Company recorded approximately $600 million of restructuring charges in the fourth quarter of 1998. The restructuring plans are evaluated on a regular basis during the integration process. A severance-related reserve of $280 million was included in the restructuring charges. This reserve was based on the Company's existing severance plans for involuntary terminations. As of September 30, 1999, approximately 1,575 employees, totaling approximately $80 million in severance-related benefits, had entered the severance process. The restructuring charges also included approximately $250 million related to dispositions of owned and leased premises held for sale or remarketing, which is expected to be used by mid-2000. The remaining balance of this reserve was approximately $160 million at September 30, 1999, which was comprised of approximately $50 million for owned premises and approximately $110 million for leased premises. The remaining balance of other restructuring charges, which totaled $70 million when originally recorded, was $15 million at September 30, 1999. The suspension of depreciation on these assets held for disposition reduced net occupancy expense and equipment expense by a total of $13 million for the nine months ended September 30, 1999.
The Company regularly explores opportunities for acquisitions of financial institutions and related businesses. Generally, management of the Company does not make a public announcement about an acquisition opportunity until a definitive agreement has been signed. The Company had eight pending transactions as of September 30, 1999 with total assets of $3.3 billion, and anticipates that approximately $146 million of cash and approximately 22.3 million common shares will be issued upon consummation of these transactions. The pending transactions, subject to approval by regulatory agencies, are expected to be completed by the first quarter of 2000, and are not significant to the financial statements of the Company, either individually or in the aggregate.
During the nine months ended September 30, 1999, the Company completed nine transactions involving the acquisition of $2.0 billion in assets. In connection with these acquisitions, the Company paid $395 million in cash and issued 6.2 million shares of its common stock. These transactions were not significant to the financial statements of the Company, either individually or in the aggregate.
2. PREFERRED STOCK
The Company is authorized to issue 20,000,000 shares of preferred stock and 4,000,000 shares of preference stock, both without par value. All preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but have no general voting rights. No preference shares have been issued under this authorization.
The table below is a summary of the Company's preferred stock at September 30, 1999, December 31, 1998 and September 30, 1998. A detailed description of the Company's preferred stock is provided in Note 11 to the audited consolidated financial statements included in the Company's 1998 Annual Report on Form 10-K.
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Shares issued and outstanding Carrying amount (in millions) Adjustable
---------------------------------- --------------------------------- dividends rate
SEPT. 30, Dec. 31, Sept. 30, SEPT. 30, Dec. 31, Sept. 30, -----------------
1999 1998 1998 1999 1998 1998 Minimum Maximum
--------- --------- --------- -------- ------- -------- ------- -------
Adjustable-Rate Cumulative, Series B
(Liquidation preference $50) 1,500,000 1,500,000 1,500,000 $ 75 $ 75 $ 75 5.5% 10.5%
6.59%/Adjustable-Rate Noncumulative
Preferred Stock, Series H
(Liquidation preference $50) 4,000,000 4,000,000 4,000,000 200 200 200 7.0 13.0
Cumulative Tracking
(Liquidation preference $200) 980,000 980,000 980,000 196 196 196 9.30 9.30
1999 ESOP Cumulative Convertible
(Liquidation preference $1,000) 22,653 -- -- 23 -- -- 10.30 11.30
1998 ESOP Cumulative Convertible
(Liquidation preference $1,000) 8,472 8,740 13,604 8 9 14 10.75 11.75
1997 ESOP Cumulative Convertible
(Liquidation preference $1,000) 13,639 19,698 19,846 13 20 20 9.50 10.50
1996 ESOP Cumulative Convertible
(Liquidation preference $1,000) 21,111 22,068 22,274 21 22 22 8.50 9.50
1995 ESOP Cumulative Convertible
(Liquidation preference $1,000) 19,790 20,130 20,283 20 20 20 10.00 10.00
ESOP Cumulative Convertible
(Liquidation preference $1,000) 9,532 9,726 9,825 9 10 10 9.0 9.0
Unearned ESOP shares(1) -- -- -- (100) (84) (90) -- --
Less Cumulative Tracking
held by subsidiary
(Liquidation preference $200) 25,000 25,000 25,000 5 5 5 9.30 9.30
--------- --------- --------- ---- ---- ----
Total 6,550,197 6,535,362 6,540,832 $460 $463 $462
--------- --------- --------- ---- ---- ----
--------- --------- --------- ---- ---- ----
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(1) In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans," the Company recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to be released.
3. EARNINGS PER COMMON SHARE
The table below presents earnings per common share and diluted earnings per
common share and a reconciliation of the numerator and denominator of both
earnings per common share calculations.
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Quarter Nine months
ended Sept. 30, ended Sept. 30,
-------------- ---------------
(in millions, except per share amounts) 1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------
Net income $ 962 $ 742 $ 2,777 $ 2,144
Less: Preferred stock dividends 9 9 26 26
--------- --------- -------- ---------
Net income applicable to common stock $ 953 $ 733 $ 2,751 $ 2,118
--------- --------- -------- ---------
--------- --------- -------- ---------
EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 953 $ 733 $ 2,751 $ 2,118
--------- --------- -------- ---------
--------- --------- -------- ---------
Average common shares outstanding (denominator) 1,648.6 1,617.3 1,649.0 1,614.4
--------- --------- -------- ---------
--------- --------- -------- ---------
Per share $ .58 $ .45 $ 1.67 $ 1.31
--------- --------- -------- ---------
--------- --------- -------- ---------
DILUTED EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 953 $ 733 $ 2,751 $ 2,118
--------- --------- -------- ---------
--------- --------- -------- ---------
Average common shares outstanding 1,648.6 1,617.3 1,649.0 1,614.4
Add: Stock options 17.2 21.4 17.3 20.8
Restricted share rights 1.3 2.0 1.6 2.1
--------- --------- -------- ---------
Diluted average common shares outstanding (denominator) 1,667.1 1,640.7 1,667.9 1,637.3
--------- --------- -------- ---------
--------- --------- -------- ---------
Per share $ .57 $ .45 $ 1.65 $ 1.29
--------- --------- -------- ---------
--------- --------- -------- ---------
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4. OPERATING SEGMENTS
The Company has identified four lines of business for the purposes of management reporting: Community Banking, Wholesale Banking, Norwest Mortgage and Norwest Financial. The results are determined based on the Company's management accounting process, which assigns balance sheet and income statement items to each responsible operating segment. This process is dynamic and somewhat subjective. Unlike financial accounting, there is no comprehensive, authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. The management accounting process measures the performance of the operating segments based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The Company's operating segments are defined by product type and customer segments. Changes in management structure and/or the allocation process may result in changes in allocations, transfers and assignments. In that case, results for prior quarters would be (and have been) restated to allow comparability.
THE COMMUNITY BANKING GROUP offers a complete line of diversified financial products and services to individual consumers and small businesses with annual sales up to $10 million in which the owner is also the principal financial decision maker. The Group also offers investment management and other services to retail customers and high net worth individuals, insurance and securities brokerage through affiliates and venture capital financing. This includes the Stagecoach and Advantage families of mutual funds as well as personal trust, employee benefit trust and agency assets. Loan products include lines of credit, equipment and transportation (auto, recreational vehicle, marine) loans as well as equity lines and loans. Other credit products and financial services available to small businesses and their owners include receivables and inventory financing, equipment leases, real estate financing, SBA financing, cash management, payroll services, retirement plans, medical savings accounts and credit and debit card processing. Consumer and business deposit products include checking, savings deposits, market rate accounts, Individual Retirement Accounts (IRAs) and time deposits.
Community Banking provides access to customers through a wide range of channels. The Group encompasses a network of traditional banking stores, banking centers, in-store banking centers, business centers and ATMs. Additional services include 24-hour telephone centers, Telephone Banking Centers and the National Business Banking Center. Online banking services include the Wells Fargo Internet Services Group, the Company's personal computer banking service, and Business Gateway, a personal computer banking service exclusively for the small business customer.
THE WHOLESALE BANKING GROUP serves businesses with annual sales in excess of $10 million and maintains relationships with major corporations throughout the United States. The Wholesale Banking Group provides a complete line of commercial and corporate banking services. These include traditional commercial loans and lines of credit, letters of credit, asset-based lending, equipment leasing, international trade facilities, foreign exchange services, cash management, investment management and electronic products. The Group includes the majority ownership interest in the Wells Fargo HSBC Trade Bank, which provides trade
financing, letters of credit and collection services and is sometimes supported by the Export-Import Bank of the United States (a public agency of the United States offering export finance support programs for American-made products). The Group also supports the commercial real estate market with products and services such as construction loans for commercial and residential development, land acquisition and development loans, secured and unsecured lines of credit, interim financing arrangements for completed structures, rehabilitation loans, affordable housing loans and letters of credit. Secondary market services are provided through the Real Estate Capital Markets Group. Its business includes senior loan financing, mezzanine financing, financing for leveraged transactions, purchasing distressed real estate loans and high yield debt, origination of permanent loans for securitization, loan syndications and commercial real estate loan servicing.
NORWEST MORTGAGE'S activities include the origination and purchase of residential mortgage loans for sale to various investors as well as providing servicing of mortgage loans for others.
NORWEST FINANCIAL includes consumer finance and auto finance operations. Consumer finance operations make direct loans to consumers and purchase sales finance contracts from retail merchants from offices throughout the United States and Canada and in the Caribbean and Latin America. Automobile finance operations specialize in purchasing sales finance contracts directly from automobile dealers and making loans secured by automobiles in the United States and Puerto Rico. Credit cards are issued to its consumer finance customers through two credit card banks. Norwest Financial also provides accounts receivable, lease and other commercial financing and provides information services to the consumer finance industry.
THE RECONCILIATION COLUMN includes goodwill and the nonqualifying core deposit intangible (CDI), the net impact of transfer pricing loan and deposit balances, the cost of external debt and any residual effects of unallocated systems and other support groups. It also includes the impact of asset/liability strategies the Company has put in place to manage interest rate sensitivity at the enterprise level.
The following table provides the results for the Company's four major operating segments.
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(income/expense in millions, Community Wholesale Norwest
average balances in billions) Banking Banking Mortgage
----------------- ---------------- --------------
1999 1998 1999 1998 1999 1998
QUARTER ENDED SEPTEMBER 30,
Net interest income (1) $1,688 $1,549 $ 357 $ 340 $ 33 $ 63
Provision for loan losses 147 194 19 13 2 1
Noninterest income 1,070 999 305 215 315 302
Noninterest expense 1,510 1,453 286 254 236 276
------ ------ ------ ------ ---- ----
Income (loss) before income
tax expense (benefit) 1,101 901 357 288 110 88
Income tax expense (benefit) (2) 354 339 134 115 40 32
------ ------ ------ ------ ---- ----
Net income (loss) $ 747 $ 562 $ 223 $ 173 $ 70 $ 56
------ ------ ------ ------ ---- ----
------ ------ ------ ------ ---- ----
Average loans $ 67 $ 64 $ 34 $ 33 $ 1 $ 1
Average assets 120 105 42 39 22 24
Average core deposits 113 110 9 9 5 5
Return on equity (3) 20% 16% 25% 20% 22% 16%
NINE MONTHS ENDED SEPTEMBER 30,
Net interest income (1) $4,846 $4,598 $1,054 $1,010 $139 $156
Provision for loan losses 465 626 84 (1) 8 3
Noninterest income 3,203 2,893 869 774 957 852
Noninterest expense 4,396 4,489 818 756 760 750
------ ------ ------ ------ ---- ----
Income (loss) before income
tax expense (benefit) 3,188 2,376 1,021 1,029 328 255
Income tax expense (benefit) (2) 1,078 876 380 413 120 93
------ ------ ------ ------ ---- ----
Net income (loss) $2,110 $1,500 $ 641 $ 616 $208 $162
------ ------ ------ ------ ---- ----
------ ------ ------ ------ ---- ----
Average loans $ 66 $ 64 $ 34 $ 32 $ 1 $ 1
Average assets 117 106 41 38 24 21
Average core deposits 113 109 9 8 5 5
Return on equity (3) 19% 15% 24% 25% 21% 17%
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(1) Net interest income is the primary source of income for most of the operating segments. Net interest income is the difference between actual interest earned on assets (and interest paid on liabilities) owned by a group and a funding charge (and credit) based on the Company's cost of funds. Community Banking and Wholesale Banking are charged a cost to fund any assets (e.g., loans) and are paid a funding credit for any funds provided (e.g., deposits). The interest spread is the difference between the interest rate earned on an asset or paid on a liability and the Company's cost of funds rate. (Norwest Mortgage's net interest income was composed of interest revenue of $202 million and $270 million for the third quarter of 1999 and 1998, respectively, and $677 million and $705 million for the first nine months of 1999 and 1998, respectively, and interest expense of $169 million and $207 million for the third quarter of 1999 and 1998, respectively, and $538 million and $549 million for the first nine months of 1999 and 1998, respectively.)
(2) Taxes vary by geographic concentration of revenue generation. Taxes as presented are also higher than the consolidated Company's effective tax rate as a result of taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal and applicable state income taxes. The offsets for these adjustments are found in the reconciliation column.
(3) Equity is allocated to the operating segments based on an assessment of the inherent risk associated with each business so that the returns on allocated equity are on a risk-adjusted basis and comparable across operating segments.
-------------------------------------------------------------------
Recon- Consoli-
Norwest ciliation dated
Financial column (4) Company
------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
$ 324 $ 326 $ (20) $ (15) $2,382 $2,263
72 99 -- -- 240 307
92 75 27 30 1,809 1,621
240 216 146 148 2,418 2,347
----- ----- ------ ----- ------ ------
104 86 (139) (133) 1,533 1,230
38 31 5 (29) 571 488
----- ----- ------ ----- ------ ------
$ 66 $ 55 $ (144) $(104) $ 962 $ 742
----- ----- ------ ----- ------ ------
----- ----- ------ ----- ------ ------
$ 10 $ 9 $ -- $ -- $ 112 $ 107
11 11 8 8 203 187
-- -- -- -- 127 124
16% 15% --% --% 18% 15%
$ 977 $ 972 $ (57) $(47) $6,959 $6,689
213 293 -- -- 770 921
239 225 82 126 5,350 4,870
708 652 442 450 7,124 7,097
----- ----- ------ ---- ------ ------
295 252 (417) (371) 4,415 3,541
109 91 (49) (76) 1,638 1,397
----- ----- ------ ---- ------ ------
$ 186 $ 161 $ (368) $(295) $2,777 $2,144
----- ----- ------ ----- ------ ------
----- ----- ------ ----- ------ ------
$ 9 $ 9 $ -- $ -- $ 110 $ 106
11 11 8 9 201 185
-- -- -- -- 127 122
16% 16% --% --% 18% 15%
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(4) The material items in the reconciliation column related to revenue (i.e., net interest income plus noninterest income) and net income consist of Treasury activities and unallocated items. Revenue includes Treasury activities of $22 million and $24 million; and unallocated items of $(15) million and $(9) million for the third quarter of 1999 and 1998, respectively. Revenue includes Treasury activities of $63 million and $101 million; and unallocated items of $(38) million and $(22) million for the first nine months of 1999 and 1998, respectively. Net income includes Treasury activities of $13 million and $14 million; and unallocated items of $(157) million and $(118) million for the third quarter of 1999 and 1998, respectively. Net income includes Treasury activities of $38 million and $58 million; and unallocated items of $(406) million and $(353) million for the first nine months of 1999 and 1998, respectively. The material items in the reconciliation column related to noninterest expense include goodwill and nonqualifying CDI amortization of $124 million and $129 million for the third quarter of 1999 and 1998, respectively, and $376 million and $394 million for the first nine months of 1999 and 1998, respectively. The material items in the reconcilation column related to average assets include goodwill and nonqualifying CDI of $8 billion for all periods presented.
5. MORTGAGE BANKING ACTIVITIES
Mortgage banking activities include Norwest Mortgage and mortgage banking activities in other operating segments.
The outstanding balance of mortgage loans serviced for others, which are not included in the accompanying balance sheet, was $283 billion, $250 billion and $238 billion at September 30, 1999, December 31, 1998 and September 30, 1998, respectively.
The following table summarizes the changes in capitalized mortgage loan servicing rights:
-------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
-------------------- --------------------
(in millions) 1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $4,144 $2,968 $3,144 $3,112
Originations 181 181 654 492
Purchases 150 183 522 521
Sales -- -- -- (346)
Amortization (139) (242) (599) (602)
Other (principally hedge activity) 5 (301) 620 (388)
------ ------ ------ ------
4,341 2,789 4,341 2,789
Less valuation allowance -- 64 -- 64
------ ------ ------ ------
Balance, end of period $4,341 $2,725 $4,341 $2,725
------ ------ ------ ------
------ ------ ------ ------
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During the quarter ended September 30, 1999, the Company reduced its valuation allowance for capitalized mortgage servicing rights by $64 million.
The fair value of capitalized mortgage servicing rights included in the consolidated balance sheet at September 30, 1999 was approximately $4.6 billion, calculated using discount rates ranging from 500 to 700 basis points over the ten-year U.S. Treasury rate.
FINANCIAL REVIEW
SUMMARY FINANCIAL DATA
-----------------------------------------------------------------------------------------------------------------------------------
% Change
Quarter ended Sept. 30, 1999 from Nine months ended
----------------------------- ------------------- --------------------
SEPT. 30, June 30, Sept. 30, June 30, Sept. 30, SEPT. 30, Sept. 30, %
(in millions) 1999 1999 1998 1999 1998 1999 1998 Change
-----------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
Net income $ 962 $ 931 $ 742 3% 30% $ 2,777 $ 2,144 30%
Net income applicable to common stock 953 922 733 3 30 2,751 2,118 30
Earnings per common share $ .58 $ .56 $ .45 4 29 $ 1.67 $ 1.31 27
Diluted earnings per common share .57 .55 .45 4 27 1.65 1.29 28
Dividends declared per common share .20 .20 .185 -- 8 .585 .515 14
Average common shares outstanding 1,648.6 1,651.4 1,617.3 -- 2 1,649.0 1,614.4 2
Diluted average common shares outstanding 1,667.1 1,672.3 1,640.7 -- 2 1,667.9 1,637.3 2
Profitability ratios (annualized)
Net income to average total assets (ROA) 1.88% 1.86% 1.58% 1 19 1.85% 1.55% 19
Net income applicable to common stock to
average common stockholders' equity (ROE) 17.97 17.50 14.72 3 22 17.60 14.55 21
Total revenue $ 4,191 $ 4,125 $ 3,884 2 8 $ 12,309 $ 11,559 6
Efficiency ratio (1) 57.7% 57.3% 60.4% 1 (4) 57.9% 61.4% (6)
Average loans $ 112,262 $108,996 $106,553 3 5 $109,714 $105,830 4
Average assets 202,972 200,342 186,634 1 9 200,694 185,187 8
Average core deposits 126,759 127,563 123,720 (1) 2 127,481 122,449 4
Net interest margin 5.73% 5.68% 5.88% 1 (3) 5.67% 5.86% (3)
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE DEPOSIT
INTANGIBLE AMORTIZATION AND BALANCES
("CASH" OR "TANGIBLE") (2)
Net income applicable to common stock $ 1,087 $ 1,054 $ 872 3 25 $ 3,149 $ 2,534 24
Earnings per common share .66 .64 .54 3 22 1.91 1.57 22
Diluted earnings per common share .65 .63 .53 3 23 1.89 1.55 22
ROA 2.24% 2.23% 1.97% -- 14 2.22% 1.95% 14
ROE 34.33 33.43 31.47 3 9 34.04 32.02 6
Efficiency ratio 54.1 53.7 56.3 1 (4) 54.2 57.2 (5)
AT PERIOD END
Securities available for sale $ 36,906 $ 35,710 $ 32,210 3 15 $ 36,906 $ 32,210 15
Loans 114,709 111,646 107,692 3 7 114,709 107,692 7
Allowance for loan losses 3,167 3,165 3,170 -- -- 3,167 3,170 --
Goodwill 7,620 7,598 7,758 -- (2) 7,620 7,758 (2)
Assets 207,060 205,421 195,863 1 6 207,060 195,863 6
Core deposits 125,160 127,302 123,792 (2) 1 125,160 123,792 1
Common stockholders' equity 21,722 20,915 20,096 4 8 21,722 20,096 8
Stockholders' equity 22,182 21,375 20,558 4 8 22,182 20,558 8
Tier 1 capital (3) 14,005 13,454 12,437 4 13 14,005 12,437 13
Total capital (Tiers 1 and 2) (3) 18,166 17,612 16,800 3 8 18,166 16,800 8
Capital ratios
Common stockholders' equity to assets 10.49% 10.18% 10.26% 3 2 10.49% 10.26% 2
Stockholders' equity to assets 10.71 10.41 10.50 3 2 10.71 10.50 2
Risk-based capital (3)
Tier 1 capital 8.71 8.45 8.20 3 6 8.71 8.20 6
Total capital 11.30 11.07 11.07 2 2 11.30 11.07 2
Leverage (3) 7.22 7.05 7.00 2 3 7.22 7.00 3
Book value per common share $ 13.17 $ 12.67 $ 12.40 4 6 $ 13.17 $ 12.40 6
Staff (active, full-time equivalent) 89,528 90,410 89,719 (1) -- 89,528 89,719 --
COMMON STOCK PRICE
High $ 45.31 $ 44.88 $ 39.75 1 14 $ 45.31 $ 43.88 3
Low 36.44 34.38 27.50 6 33 32.13 27.50 17
Period end 39.63 42.75 36.00 (7) 10 39.63 36.00 10
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(1) The efficiency ratio is defined as noninterest expense divided by total
revenue (net interest income and noninterest income).
(2) Nonqualifying core deposit intangible (CDI) amortization and average
balance excluded from these calculations are, with the exception of the
efficiency and ROA ratios, net of applicable taxes. The pretax amount for
the average balance of nonqualifying CDI was $1,301 million for the quarter
ended September 30, 1999 and $1,345 million for the nine months ended
September 30, 1999. The after-tax amounts for the amortization and average
balance of nonqualifying CDI were $27 million and $807 million,
respectively, for the quarter ended September 30, 1999 and $84 million and
$834 million, respectively, for the nine months ended September 30, 1999.
Goodwill amortization and average balance (which are not tax effected) were
$106 million and $7,674 million, respectively, for the quarter ended
September 30, 1999 and $314 million and $7,688 million, respectively, for
the nine months ended September 30, 1999.
(3) See the Capital Adequacy/Ratios section for additional information.
OVERVIEW
Wells Fargo & Company is a $207 billion diversified financial services company providing banking, mortgage and consumer finance through about 6,000 stores, the Internet and other distribution channels throughout North America, including all 50 states, and elsewhere internationally. It ranked seventh in assets at September 30, 1999 among U.S. bank holding companies. In this Form 10-Q, Wells Fargo & Company together with its subsidiaries are referred to as the Company and Wells Fargo & Company alone is referred to as the Parent.
On November 2, 1998, Norwest Corporation changed its name to "Wells Fargo & Company" upon the merger (the Merger) of the former Wells Fargo & Company (the former Wells Fargo) into a wholly-owned subsidiary of Norwest Corporation. Norwest Corporation as it was before the Merger is referred to as the former Norwest. The Merger was accounted for as a pooling of interests and, accordingly, the information included in the financial review presents the combined results as if the Merger had been in effect for all periods presented. Certain amounts for prior quarters in the financial review have been reclassified to conform with the current financial statement presentation.
Net income for the third quarter of 1999 was $962 million, compared with $742 million for the third quarter of 1998. Diluted earnings per common share for the third quarter of 1999 were $.57, compared with $.45 for the third quarter of 1998. Net income for the first nine months of 1999 was $2,777 million, or $1.65 per share, compared with $2,144 million, or $1.29 per share, for the first nine months of 1998.
Return on average assets (ROA) was 1.88% and 1.85% in the third quarter and first nine months of 1999, respectively, compared with 1.58% and 1.55% in the same periods of 1998. Return on average common equity (ROE) was 17.97% and 17.60% in the third quarter and first nine months of 1999, respectively, compared with 14.72% and 14.55% in the same periods of 1998.
Diluted earnings before the amortization of goodwill and nonqualifying core deposit intangible ("cash" or "tangible" earnings) in the third quarter and first nine months of 1999 were $.65 and $1.89 per share, respectively, compared with $.53 and $1.55 per share in the same periods of 1998. On the same basis, ROA was 2.24% and 2.22% in the third quarter and first nine months of 1999, respectively, compared with 1.97% and 1.95% in the same periods of 1998; ROE was 34.33% and 34.04% in the third quarter and first nine months of 1999, respectively, compared with 31.47% and 32.02% in the same periods of 1998.
Net interest income on a taxable-equivalent basis was $2,399 million and $7,007 million for the third quarter and first nine months of 1999, respectively, compared with $2,278 million and $6,734 million for the same periods of 1998. The Company's net interest margin was 5.73% and 5.67% for the third quarter and first nine months of 1999, respectively, compared with 5.88% and 5.86% for the same periods of 1998.
Noninterest income was $1,809 million and $5,350 million for the third quarter and first nine months of 1999, respectively, compared with $1,621 million and $4,870 million for the same
periods of 1998. The increase for the third quarter of 1999 was mostly due to higher net mortgage servicing fees and higher venture capital gains partially offset by gains on sales of mortgages in the third quarter of 1998. The increase for the first nine months of 1999 was primarily due to higher net mortgage servicing fees, venture capital gains and trust and investment fees and commissions.
Noninterest expense totaled $2,418 million and $7,124 million for the third quarter and first nine months of 1999, respectively, compared with $2,347 million and $7,097 million for the same periods of 1998. The efficiency ratio improved to 57.7% for the third quarter of 1999, and 57.9% for the first nine months of 1999, compared with 60.4% and 61.4% for the same periods a year ago. The Company expects to meet its pre-Merger target of approximately $650 million in annual pretax cost savings not later than 36 months after Merger consummation. About 25% of the cost savings are expected to be achieved within the first year.
The provision for loan losses was $240 million and $770 million in the third quarter and first nine months of 1999, respectively, compared with $307 million and $921 million in the same periods of 1998. During the third quarter of 1999, net charge-offs were $241 million, or .85% of average total loans (annualized), compared with $318 million, or 1.18%, during the third quarter of 1998. The allowance for loan losses was $3,167 million, or 2.76% of total loans, at September 30, 1999, compared with $3,134 million, or 2.90%, at December 31, 1998 and $3,170 million, or 2.94%, at September 30, 1998.
At September 30, 1999, total nonaccrual and restructured loans were $698 million, or .6% of total loans, compared with $710 million, or .7%, at December 31, 1998 and $722 million, or .7%, at September 30, 1998. Foreclosed assets amounted to $213 million at September 30, 1999, $167 million at December 31, 1998 and $176 million at September 30, 1998.
At September 30, 1999, the ratio of common stockholders' equity to total assets was 10.49%, compared with 10.26% at September 30, 1998. The Company's total risk-based capital (RBC) ratio at September 30, 1999 was 11.30% and its Tier 1 RBC ratio was 8.71%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies. The Company's ratios at September 30, 1998 were 11.07% and 8.20%, respectively. The Company's leverage ratio was 7.22% at September 30, 1999 and 7.00% at September 30, 1998, exceeding the minimum regulatory guideline of 3% for bank holding companies.
RECENT DEVELOPMENTS - FINANCIAL MODERNIZATION
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act (the Act) which will, effective March 11, 2000, permit bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company (FHC) if each of its subsidiary banks is well capitalized under the FDICIA prompt corrective action provisions, well managed, and has at least a satisfactory rating under the Community Reinvestment Act (CRA) by filing a declaration that the bank holding company wishes to become a FHC. No regulatory approval will be required for a FHC to acquire a
company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Board of Governors of the Federal Reserve System (the Board). The Act defines "financial in nature" to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Board has determined to be closely related to banking. A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory CRA rating. Subsidiary banks of a FHC or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a FHC or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the FHC or the bank has at least a satisfactory CRA rating.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This document and other documents filed by the Company with the Securities and Exchange Commission (SEC) have forward-looking statements. In addition, the Company's senior management may make forward-looking statements orally to analysts, investors, the media and others. These forward-looking statements may include one or more of the following:
-- Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items;
-- Descriptions of plans or objectives of management for future operations, products or services;
-- Forecasts of future economic performance;
-- "Year 2000 Readiness Disclosures" under the Year 2000 Information and Readiness Disclosure Act; and
-- Descriptions of assumptions underlying or relating to any of the foregoing.
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may."
Forward-looking statements give the Company's expectations or predictions of future conditions, events or results. They are not guarantees of future performance. By their nature,
forward-looking statements are subject to risks and uncertainties. There are a number of factors--many of which are beyond the Company's control--that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements.
Some of these factors are described below. Other factors, such as credit, market, operational, liquidity, interest rate, Year 2000 and other risks, are described elsewhere in this report and in the MD&A section of the 1998 Annual Report on Form 10-K filed by the Company with the SEC. Factors relating to the regulation and supervision of the Company and its subsidiaries are also described or incorporated in the Form 10-K. There are other factors besides those described or incorporated in this report or in the other reports filed by the Company with the SEC that could cause actual conditions, events or results to differ from those in the forward-looking statements.
Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
BUSINESS AND ECONOMIC CONDITIONS. The Company's business and earnings are sensitive to general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the strength of the U.S. economy generally and the local economies in which the Company conducts business. Should any of these conditions worsen in the United States or abroad, the Company's business and earnings could be adversely affected. For example, an economic downturn or higher interest rates could decrease the demand for loans and other products and services offered by the Company and/or increase the number of customers and counterparties who become delinquent or who default on their loans or other obligations to the Company. An increase in the number of delinquencies or defaults would result in a higher level of charge-offs and a higher level of loan loss provision, which could adversely affect the Company's earnings. Higher interest rates would also increase the Company's cost to borrow funds and may increase the rate paid on deposits, which could more than offset, in the net interest margin, the increase in rates earned by the Company on new or floating rate loans or short-term investments. See "Quantitative and Qualitative Disclosures About Market Risk" for more information on interest rate risk.
COMPETITION. The Company operates in a highly competitive environment both in terms of the products and services the Company offers and the geographic markets in which the Company conducts business. The Company expects this environment to become even more competitive in the future as a result of legislative, regulatory and technological changes and the continued trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks, such as automatic transfer and automatic payment systems. Also, investment banks and insurance companies are competing in an increasing number of traditional banking businesses such as syndicated lending and consumer banking. Many of the Company's competitors enjoy the benefits of advanced technology, fewer regulatory constraints and lower cost structures.
The financial services industry is likely to become even more competitive as further technological advances enable more companies to provide financial services. The Company expects that the consolidation of the financial services industry will result in larger, better capitalized companies offering a wide array of financial services and products. The Company believes that recent legislative changes (see "Legislation" below), will further increase the competitive pressures in the financial services industry.
FISCAL AND MONETARY POLICIES. The Company's business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. The Company is particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States. The Federal Reserve Board's policies directly and indirectly influence the rate of interest that commercial banks pay on their interest-bearing deposits and may also affect the value of financial instruments held by the Company. These policies also determine to a significant extent the cost to the Company of funds for lending and investing. Changes in these policies are beyond the Company's control and hard to predict. Federal Reserve Board policies can also affect the Company's customers and counterparties, potentially increasing the risk that such customers and counterparties may become delinquent or default on their obligations to the Company.
DISINTERMEDIATION. "Disintermediation" is the process of eliminating the role of the mediator (or middleman) in completing a transaction. For the financial services industry, this means eliminating or significantly reducing the role of banks and other depository institutions in completing transactions that have traditionally involved banks at one end or both ends of the transaction. For example, technological advances now allow parties to pay bills and transfer funds directly without the involvement of banks. Important consequences of this disintermediation include the loss of customer deposits (and the income generated from these deposits) and decreases in transactions that generate fee income.
LEGISLATION. The Gramm-Leach-Bliley Act permits affiliation among banks, securities firms and insurance companies by creating a new type of financial services company called a "financial holding company." Financial holding companies may offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Under the Act, securities firms and insurance companies that elect to become a financial holding company may acquire banks and other financial institutions. The Act significantly changes the competitive environment in which the Company and its subsidiaries conduct business.
MERGER OF FORMER NORWEST AND FORMER WELLS FARGO. One or more factors relating to the Merger could adversely impact the Company's business and earnings generally and in particular the expected benefits of the Merger to the Company. These factors include the following:
-- expected cost savings and/or potential revenue enhancements from the Merger may not be fully realized or realized within the expected time frame;
-- deposit attrition (run-off), customer loss and/or revenue loss following the Merger may be greater than expected;
-- costs or difficulties related to the integration of the businesses of the two companies may be greater than expected.
OTHER MERGERS AND ACQUISITIONS. The Company expands its business in part by acquiring banks and other companies engaged in activities closely related to banking. The Company continues to explore opportunities to acquire banking institutions and other companies permitted by the Bank Holding Company Act of 1956. Discussions are continually being carried on related to such acquisitions. Generally, management of the Company does not comment on such discussions or possible acquisitions until a definitive agreement has been signed. A number of factors related to past and future acquisitions could adversely affect the Company's business and earnings, including those described above for the Norwest/Wells Fargo merger. In addition, the Company's acquisitions generally are subject to approval by federal and, in some cases, state regulatory agencies. The failure to receive required regulatory approvals within the time frame or on the conditions expected by management could also adversely affect the Company's business and earnings.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities. In July 1999, the FASB issued FAS 137, Deferring Statement 133's Effective Date, which defers the effective date for implementation of FAS 133 by one year, making FAS 133 effective no later than January 1, 2001 for the Company's financial statements. FAS 133 requires companies to record derivatives on the balance sheet, measured at fair value. Changes in the fair values of those derivatives would be reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. The Company has not yet determined when it will implement the Statement nor has it completed the complex analysis required to determine the impact on the financial statements.
OPERATING SEGMENT RESULTS
COMMUNITY BANKING'S net income increased to $747 million in the third quarter of 1999 from $562 million in the third quarter of 1998, an increase of 33%. Net income increased to $2,110 million for the first nine months of 1999 from $1,500 million for the first nine months of 1998, an increase of 41%. Net interest income increased to $1,688 million in the third quarter of 1999 from $1,549 million in the third quarter of 1998. Net interest income increased to $4,846 million for the first nine months of 1999 from $4,598 million in the first nine months of 1998. The provision for loan losses decreased by $47 million and $161 million for the third quarter and first nine months of 1999, respectively, reflecting lower charge-offs.
Noninterest income for the third quarter of 1999 increased by $71 million over the same period in 1998. The increase in noninterest income for the third quarter of 1999 was mostly due to higher venture capital gains, commissions and trust and investment fees.
WHOLESALE BANKING'S net income was $223 million in the third quarter of 1999, compared with $173 million in the third quarter of 1998, an increase of 29%. Net income was $641 million for the first nine months of 1999, compared with $616 million in the first nine months of 1998, an increase of 4%. Net interest income was $357 million in the third quarter of 1999 and $340 million in the third quarter of 1998. The increase in net interest income was due to higher average loans within asset-based lending and Real Estate Capital Markets. Net interest income increased to $1,054 million for the first nine months of 1999 from $1,010 million in the first nine months of 1998. Average outstanding loan balances grew to $34 billion in the third quarter of 1999 from $33 billion in the third quarter of 1998. Noninterest income increased to $305 million and $869 million in the third quarter and first nine months of 1999, respectively, from $215 million and $774 million in the same periods of 1998. The increase for both periods was primarily due to higher gains from investment securities and trading activities as well as increased income from service charges, fees and commissions, and foreign exchange gains. Noninterest expense increased to $286 million in the third quarter of 1999 and $818 million for the first nine months of 1999 from $254 million and $756 million for the same periods in the prior year. The increase for the first nine months of 1999 was primarily due to increased expenses in the investment management area and the addition of Century Business Credit Corporation, which was acquired in the first quarter of 1999. The provision for loan losses increased by $6 million and $85 million for the third quarter and first nine months of 1999, respectively, due to increased charge-offs.
NORWEST MORTGAGE'S net income in the third quarter of 1999 increased to $70
million from $56 million in the third quarter of 1998, an increase of 25%.
Net income increased to $208 million for the first nine months of 1999 from
$162 million in the first nine months of 1998, an increase of 28%. The
increase for the third quarter of 1999 was principally due to growth in the
servicing portfolio and decreased amortization of mortgage servicing rights,
offset by a decrease in loan origination and closing fees. The servicing
portfolio increased to $274 billion at September 30, 1999 from $233 billion
at September 30, 1998. The weighted average coupon on loans in the servicing
portfolio was 7.30% at September 30, 1999 compared with 7.54% a year earlier.
Total capitalized mortgage servicing rights amounted to $4.3 billion, or
1.58%, of the servicing portfolio at September 30, 1999 compared with $2.7
billion, or 1.17%, at September 30, 1998. Amortization of capitalized
mortgage servicing rights was $139 million and $599 million for the third
quarter and first nine months of 1999, respectively, compared with $242
million and $570 million for the same periods of 1998. The decrease in
amortization for the third quarter of 1999 was largely due to rising interest
rates, which decreased the prepayment speeds in the servicing portfolio.
Combined (losses)/gains on sales of mortgages and servicing rights were $(29)
million for the third quarter of 1999 and $194 million for the first nine
months of 1999, compared with $152 million and $288 million for the same
periods of the prior year. The decrease for the third quarter of 1999 was
largely due to less favorable market conditions and decreased loan sales.
Fundings for the third quarter and first nine months of 1999 were $19 billion
and $69 billion, respectively, compared with $28 billion and $75 billion for
the same
periods of the prior year. The decrease in third quarter funding volume was primarily due to a decrease in refinance activity. The percentage of fundings attributed to mortgage loan refinancing was approximately 20% for the third quarter of 1999, compared with 43% for the same period in 1998.
NORWEST FINANCIAL'S net income increased to $66 million in the third quarter of 1999 from $55 million for the same period in 1998, an increase of 20%. Net income increased to $186 million for the first nine months of 1999 from $161 million for the same period in 1998, an increase of 16%. The provision for loan losses decreased 27% in the third quarter and first nine months of 1999 compared to the same periods in the prior year due to a reduction in the provision for loan losses at Island Finance. Norwest Financial's noninterest expense increased by $24 million, or 11%, and $56 million, or 9%, for the quarter and nine months ended September 30, 1999, respectively, from the same periods in 1998. The increase for both periods was due to higher salaries, incentive compensation and employee benefits.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $2,399 million in the third quarter of 1999, compared with $2,278 million in the third quarter of 1998. The Company's net interest margin was 5.73% in the third quarter of 1999, compared with 5.88% in the third quarter of 1998. Net interest income on a taxable-equivalent basis was $7,007 million in the first nine months of 1999, compared with $6,734 million in the first nine months of 1998. The Company's net interest margin was 5.67% in the first nine months of 1999, compared with 5.86% in the first nine months of 1998. The decrease in the net interest margin for both the third quarter and the first nine months was primarily due to higher balances of lower yielding investment securities and lower yields on consumer loans and commercial real estate mortgages partially offset by decreased rates on consumer deposits.
Interest income included hedging income of $51 million in the third quarter of 1999, compared with $21 million in the third quarter of 1998. Interest expense included hedging income of $24 million in the third quarter of 1999, compared with $19 million in the same quarter of 1998.
Individual components of net interest income and the net interest margin are presented in the rate/yield table on the following page.
Average core deposits were $127 billion and $124 billion and funded 62% and 66% of the Company's average total assets in the third quarter of 1999 and 1998, respectively. For the first nine months of 1999 and 1998, average core deposits were $127 billion and $122 billion, respectively, and funded 64% and 66% of the Company's average total assets, respectively.
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
----------------------------------------------------------------------------------------------------------------------------
Quarter ended Sept. 30,
-------------------------------------------------------------
1999 1998
--------------------------- --------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
(IN MILLIONS) BALANCE RATES EXPENSE balance rates expense
----------------------------------------------------------------------------------------------------------------------------
EARNING ASSETS
Federal funds sold and securities purchased
under resale agreements $ 1,327 5.13% $ 17 $ 2,120 5.86% $ 31
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 5,915 5.47 85 4,494 6.03 68
Securities of U.S. states and political subdivisions 1,848 8.31 38 1,547 8.57 31
Mortgage-backed securities:
Federal agencies 20,840 7.11 374 15,286 7.09 265
Private collateralized mortgage obligations 3,003 6.89 53 3,078 6.70 51
-------- ------ -------- ------
Total mortgage-backed securities 23,843 7.08 427 18,364 7.03 316
Other securities 3,612 6.93 50 1,533 6.29 21
-------- ------ -------- ------
Total securities available for sale 35,218 6.85 600 25,938 6.90 436
Loans held for sale (3) 4,381 7.24 80 4,757 7.84 93
Mortgages held for sale (3) 10,711 7.33 198 13,142 7.01 230
Loans:
Commercial 36,011 8.88 806 33,762 8.92 758
Real estate 1-4 family first mortgage 12,236 8.58 263 12,558 8.47 266
Other real estate mortgage 17,243 8.73 379 16,230 9.53 390
Real estate construction 4,189 9.38 99 3,764 9.43 90
Consumer:
Real estate 1-4 family junior lien mortgage 11,817 9.01 267 10,837 9.58 261
Credit card 5,323 13.95 187 5,877 15.07 221
Other revolving credit and monthly payment 16,848 12.06 509 16,345 12.87 527
-------- ------ -------- ------
Total consumer 33,988 11.29 963 33,059 12.18 1,009
Lease financing 7,070 7.76 137 5,766 8.20 118
Foreign 1,525 20.88 80 1,414 21.03 74
-------- ------ -------- ------
Total loans (4) 112,262 9.67 2,727 106,553 10.11 2,705
Other 3,067 4.68 36 2,794 6.71 48
-------- ------ -------- ------
Total earning assets $166,966 8.73 3,658 $155,304 9.13 3,543
-------- ------ -------- ------
-------- --------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 2,723 .92 6 $ 2,774 1.03 7
Market rate and other savings 56,339 2.23 317 52,331 2.68 354
Savings certificates 25,262 4.66 297 27,750 5.21 364
Other time deposits 3,276 4.86 40 3,955 5.50 55
Deposits in foreign offices 1,552 4.86 19 663 4.77 8
-------- ------ -------- ------
Total interest-bearing deposits 89,152 3.02 679 87,473 3.58 788
Short-term borrowings 17,649 5.09 226 13,819 5.59 195
Long-term debt 23,112 5.85 339 16,713 6.37 266
Guaranteed preferred beneficial interests in Company's
subordinated debentures 785 7.56 15 744 8.59 16
-------- ------ -------- ------
Total interest-bearing liabilities 130,698 3.83 1,259 118,749 4.23 1,265
Portion of noninterest-bearing funding sources 36,268 -- -- 36,555 -- --
-------- ------ -------- ------
Total funding sources $166,966 3.00 1,259 $155,304 3.25 1,265
-------- ------ -------- ------
-------- --------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (5) 5.73% $2,399 5.88% $2,278
---- ------ ----- ------
---- ------ ----- ------
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 11,196 $ 10,381
Goodwill 7,674 7,811
Other 17,136 13,138
-------- --------
Total noninterest-earning assets $ 36,006 $ 31,330
-------- --------
-------- --------
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 42,435 $ 40,865
Other liabilities 8,337 6,803
Preferred stockholders' equity 460 462
Common stockholders' equity 21,042 19,755
Noninterest-bearing funding sources used to
fund earning assets (36,268) (36,555)
-------- --------
Net noninterest-bearing funding sources $ 36,006 $ 31,330
-------- --------
-------- --------
TOTAL ASSETS $202,972 $186,634
-------- --------
-------- --------
----------------------------------------------------------------------------------------------------------------------------
|
(1) The average prime rate of the Company was 8.10% and 8.50% for the quarters ended September 30, 1999 and 1998, respectively, and 7.87% and 8.50% for the nine months ended September 30, 1999 and 1998, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 5.44% and 5.62% for the quarters ended September 30, 1999 and 1998, respectively, and 5.17% and 5.65% for the nine months ended September 30, 1999 and 1998, respectively.
(2) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(3) Yields are based on amortized cost balances.
(4) Nonaccrual loans and related income are included in their respective loan categories.
(5) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal and applicable state income taxes. The federal statutory tax rate was 35% for all periods presented.
--------------------------------------------------------------
Nine months ended Sept. 30,
--------------------------------------------------------------
1999 1998
---------------------------- ----------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
BALANCE RATES EXPENSE balance rates expense
--------------------------------------------------------------
$ 1,311 4.95% $ 49 $ 1,531 5.73% $ 66
5,608 5.43 233 5,254 5.97 233
1,797 8.36 108 1,524 8.53 93
19,923 6.81 1,014 16,153 7.14 846
3,156 6.82 162 2,641 6.78 134
------- ------ -------- ------
23,079 6.81 1,176 18,794 7.09 980
3,202 6.81 136 1,460 4.55 60
------- ------ -------- ------
33,686 6.65 1,653 27,032 6.84 1,366
5,182 7.23 280 4,705 7.75 273
12,774 6.97 671 11,624 6.98 609
35,512 8.66 2,302 32,813 9.04 2,219
12,134 8.44 767 13,227 8.29 823
16,985 8.82 1,121 16,241 9.53 1,158
4,044 9.34 283 3,542 9.48 251
11,336 9.07 770 10,600 9.86 782
5,402 13.77 558 6,136 15.05 693
15,983 12.38 1,482 16,569 12.81 1,591
------- ------ -------- ------
32,721 11.46 2,810 33,305 12.29 3,066
6,813 7.81 399 5,417 8.30 337
1,505 20.99 237 1,285 20.88 201
------- ------ -------- ------
109,714 9.64 7,919 105,830 10.16 8,055
2,636 5.17 101 3,021 5.97 134
------- ------ -------- ------
$ 165,303 8.65 10,673 $153,743 9.14 10,503
--------- ------ -------- ------
--------- --------
$ 2,764 .89 18 $ 2,713 1.40 28
55,996 2.28 956 51,842 2.65 1,026
26,077 4.76 929 27,774 5.25 1,091
3,528 4.97 131 4,085 5.52 170
1,212 4.51 41 690 4.89 25
------- ------ -------- ------
89,577 3.10 2,075 87,104 3.59 2,340
17,567 4.83 635 13,570 5.49 557
20,903 5.81 912 16,828 6.38 805
785 7.54 44 1,089 8.15 67
------- ------ -------- ------
128,832 3.80 3,666 118,591 4.25 3,769
36,471 -- -- 35,152 -- --
------- ------ -------- ------
$ 165,303 2.97 3,666 $153,743 3.28 3,769
------- ------ -------- ------
------- --------
5.67% $7,007 5.86% $6,734
----- ------ ----- ------
----- ------ ----- ------
$ 11,184 $ 10,529
7,688 7,918
16,519 12,997
------- --------
$ 35,391 $ 31,444
------- --------
------- --------
$ 42,644 $ 40,120
7,866 6,552
460 461
20,892 19,463
(36,471) (35,152)
------- --------
$ 35,391 $ 31,444
------- --------
------- --------
$ 200,694 $185,187
------- --------
------- --------
-------------------------------------------
|
NONINTEREST INCOME
-------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
----------------- % ---------------- %
(in millions) 1999 1998 Change 1999 1998 Change
-------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $ 385 $ 356 8% $1,096 $ 993 10%
Trust and investment fees and commissions:
Asset management and custody fees 195 167 17 569 495 15
Mutual fund and annuity sales fees 99 76 30 288 227 27
All other 23 24 (4) 75 72 4
------ ------ ------ ------
Total trust and investment fees and commissions 317 267 19 932 794 17
Credit card fee revenue 138 136 1 395 384 3
Other fees and commissions:
Cash network fees 73 60 22 201 167 20
Charges and fees on loans 78 73 7 241 215 12
All other 107 108 (1) 321 313 3
------ ------ ------ ------
Total other fees and commissions 258 241 7 763 695 10
Mortgage banking: (1)
Origination and other closing fees 101 128 (21) 330 366 (10)
Servicing fees, net of amortization 176 (47) -- 231 (6) --
Net gains on sales of mortgage
servicing rights -- -- -- -- 16 (100)
Net (losses) gains on sales of mortgages (16) 142 -- 228 306 (25)
All other 57 52 10 180 172 5
------ ------ ------ ------
Total mortgage banking 318 275 16 969 854 13
Insurance 95 73 30 299 278 8
Net venture capital gains 162 4 -- 287 116 147
Net (losses) gains on securities available for sale (2) 76 -- 19 161 (88)
Income from equity investments accounted
for by the
Cost method 35 32 9 99 116 (15)
Equity method 18 12 50 59 43 37
Net gains on sales of loans 6 25 (76) 32 48 (33)
Net gains on dispositions of operations -- 18 (100) 102 89 15
All other 79 106 (25) 298 299 --
------ ------ ------ ------
Total $1,809 $1,621 12% $5,350 $4,870 10%
------ ------ ---- ------ ------ ----
------ ------ ---- ------ ------ ----
-------------------------------------------------------------------------------------------------------------------
|
(1) See page 22 for discussion of Norwest Mortgage noninterest income.
The increase in trust and investment fees and commissions for the third quarter of 1999 was due to an overall increase in mutual fund management fees, reflecting the overall growth in the fund families' net assets, an increase in brokerage commissions and an increase in trust and agency assets under management and administration. The Company managed 82 mutual funds consisting of $55.0 billion of assets at September 30, 1999 that included 42 Stagecoach Funds ($30.3 billion) and 40 Norwest Advantage Funds ($24.7 billion), compared with 81 mutual funds consisting of $46.8 billion of assets at September 30, 1998 that included 38 Stagecoach Funds ($25.6 billion) and 43 Norwest Advantage Funds ($21.2 billion). The Company also managed or maintained personal trust, employee benefit trust and agency assets of approximately $402 billion and $383 billion at September 30, 1999 and 1998, respectively.
Net venture capital gains were $162 million for the third quarter and $287 million for the first nine months of 1999, compared with $4 million and $116 million for the same periods of 1998. Sales of venture capital securities generally relate to the timing of holdings becoming publicly
traded and subsequent market conditions, causing venture capital gains to be unpredictable in nature.
At September 30, 1999, the Company held a venture capital investment in Cerent Corp., which was acquired by Cisco Systems, Inc. (Cisco) through a tax-free exchange of common stock on November 1, 1999. Based on the closing price of Cisco's common stock and the exchange ratio set forth in the definitive agreement, the Company will recognize a non-cash venture capital gain of about $550 million in the fourth quarter of 1999.
NONINTEREST EXPENSE
-------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, % ended Sept. 30,
---------------- ---------------- %
(in millions) 1999 1998 Change 1999 1998 Change
-------------------------------------------------------------------------------------------------------------------
Salaries $ 776 $ 730 6% $2,251 $2,132 6 %
Incentive compensation 124 164 (24) 393 449 (12)
Employee benefits 208 167 25 624 543 15
Equipment 193 192 1 566 572 (1)
Net occupancy 205 188 9 576 564 2
Goodwill 106 108 (2) 314 317 (1)
Core deposit intangible:
Nonqualifying (1) 44 52 (15) 135 162 (17)
Qualifying 5 6 (17) 16 21 (24)
Net losses (gains) on dispositions of premises
and equipment 6 7 (14) (5) 55 --
Operating losses 25 35 (29) 91 106 (14)
Outside professional services 83 74 12 243 213 14
Contract services 119 89 34 320 243 32
Telecommunications 66 66 -- 191 187 2
Outside data processing 69 66 5 207 174 19
Advertising and promotion 54 62 (13) 160 181 (12)
Postage 54 56 (4) 169 168 1
Travel and entertainment 58 53 9 173 153 13
Stationery and supplies 44 41 7 122 123 (1)
Insurance 41 29 41 127 111 14
Security 22 22 -- 64 63 2
All other 116 140 (17) 387 560 (31)
------ ------ ------ ------
Total $2,418 $2,347 3% $7,124 $7,097 -- %
------ ------ --- ------ ------ ----
------ ------ --- ------ ------ ----
-------------------------------------------------------------------------------------------------------------------
|
(1) Amortization of core deposit intangible acquired after February 1992 that is subtracted from stockholders' equity in computing regulatory capital for bank holding companies.
The decrease in incentive compensation was due to decreased commissions on mortgage originations.
The increase in contract services was largely due to expenses associated with various Merger-related projects.
During the third quarter of 1999, the Company continued with its enterprise-wide project to prepare and maintain the Company's systems for Year 2000 compliance. The Year 2000 compliance issue relates to computer systems that use two digits rather than four to define the applicable year and whether such systems will properly process information when the year changes to 2000. In addition, the year 2000 is a leap year but some programs may not recognize it
as a leap year and may not properly provide for February 29, 2000. "Systems" includes hardware, networks, in-house and commercial "off the shelf" software, and embedded technology such as date impacted processors in automated systems such as elevators, telephone systems, security systems, vault systems, heating and cooling systems and others. Priority is given to "mission critical" systems. A system is considered "mission critical" if it is identified by management as vital to the successful continuation of a core business activity.
The former Norwest's Year 2000 readiness project is divided into four phases:
Phase I - a comprehensive assessment and inventory of applicable software,
system hardware devices, data and voice communication devices and embedded
technology intended to determine Year 2000 vulnerability and risk; Phase II -
date detection on systems intended to determine which systems must be remediated
and which systems are compliant and require testing only, determination of the
resources and costs, and the development of schedules; Phase III - repair,
replacement and/or retirement of systems that are determined not to be Year 2000
compliant, and planning the integration testing for those systems that have
interfaces with other systems both internal and external to the Company, such as
customers and suppliers; and Phase IV - integration testing on applicable
systems intended to validate that interfaces are Year 2000 compliant and
contingency planning.
The former Wells Fargo also uses a four-phase plan for achieving Year 2000
readiness: the Assessment Phase (Phase I) - intended to determine which
computers, operating systems, applications and facilities require remediation
and prioritization of those remediation efforts; the Renovation Phase (Phase II)
- correction or replacement of any non-compliant hardware, software or
facilities; the Validation Phase (Phase III) - testing of in-house systems,
vendor software and service providers; and the Implementation Phase (Phase IV) -
testing of remediated and validated code in interfaces with customers, vendors,
government institutions and others. All renovated software, both in-house
applications and vendor software, is placed back into production before the
Validation Phase.
The Company has completed all of the phases discussed in the preceding two paragraphs. During the remainder of 1999, the Company will be performing the ongoing task of maintaining Year 2000 readiness for already certified mission critical systems and of monitoring the limited systems changes which are permitted under the Company's Year 2000 policies.
The Company's Year 2000 Program Office oversees the Year 2000 efforts of the Company and all of its subsidiaries, including both the former Norwest businesses and the former Wells Fargo businesses. Representatives from other areas of the Company, including the law department, audit, risk management and corporate communications, provide support for the Year 2000 project. In addition, as a financial services organization, the Company is under the supervision of federal regulatory agencies which have provided guidelines and are performing ongoing monitoring of the Year 2000 readiness of the Company.
The Company may be affected by the Year 2000 compliance efforts of governmental agencies, businesses and other entities who provide data to, or receive data from, the Company, and by entities, such as borrowers, vendors, counterparties and customers, whose financial condition or operational capability is significant to the Company. The Company's Year 2000 project also includes assessing the Year 2000 readiness of certain customers, borrowers, vendors, counterparties and governmental entities and the testing of major external interfaces with third parties that the Company has determined are critical. Using a combination of surveys and direct communication, the Company has evaluated its major credit customers, assessed their Year 2000 efforts, and incorporated any identified Year 2000 customer risks into the Company's credit risk analysis processes.
The Company has developed business continuity plans for its core business systems which include plans to mitigate the effects of internal operational problems or problems caused by counterparties whose failure to properly address Year 2000 issues may adversely affect the Company's ability to perform certain functions. The Company developed these plans by augmenting existing business continuity plans with Year 2000 plans. The Company's Corporate Business Continuity Planning group conducted a validation and review of these plans, using staff who were not involved directly in developing the plans.
As part of its business continuity planning, the Company is also working on Year 2000 event plans to address issues that may arise during the period from December 27, 1999 through January 10, 2000 and February 27 through March 1, 2000. The Company has an on-going awareness program to communicate Year 2000 matters to employees and customers and has also developed liquidity preparedness and cash availability plans to address any potential increased funding needs that may arise as the millennium approaches.
The Company currently estimates that its total cost for the Year 2000 project will approximate $325 million. Through September 30, 1999, the Company has incurred charges of $293 million related to its Year 2000 project, including $24 million in the third quarter of 1999. Charges for the former Norwest include the cost of internal staff redeployed to the Year 2000 project, as well as external consulting costs and costs of accelerated replacement of hardware and software due to Year 2000 issues. Charges for the former Wells Fargo include the cost of external consulting and costs of accelerated replacement of hardware and software, but do not include the cost of internal staff redeployed to the Year 2000 project. The Company does not believe that the redeployment of internal staff for the former Wells Fargo will have a material impact on the financial condition or results of operations for the Company.
The previous paragraphs contain a number of forward-looking statements. These statements reflect management's best current estimates, which were based on numerous assumptions about future events, including the continued availability of certain resources, representations received from third party service providers and other third parties, and additional factors. There can be no guarantee that these estimates, including Year 2000 costs, will be achieved, and actual results could differ materially from those estimates. A number of important factors could cause management's estimates and the impact of the Year 2000 issue to differ materially from what is described in the forward-looking statements contained in the above paragraphs. Those factors include, but are not limited to, uncertainties in the cost of hardware and software, the availability and cost of programmers and other systems personnel, inaccurate or incomplete
execution of the phases, ineffective remediation of computer code, the unpredictability of consumer behavior, and whether the Company's customers, vendors, competitors and other third parties effectively address the Year 2000 issue.
Year 2000 issues expose the Company to a number of risks, any one of which, if realized, could have a material adverse effect on the Company's business, results of operations or financial condition. These risks include the possibility that, to the extent certain vendors fail to adequately address Year 2000 issues, the Company may suffer disruptions in important services on which the Company depends, such as telecommunications, electrical power and data processing. Year 2000 issues could affect the Company's liquidity if customer withdrawals in anticipation of the Year 2000 are greater than expected or if the Company's lenders are unable to provide the Company with funds when and as needed by the Company. Year 2000 issues also create additional credit risk to the Company insofar as the failure of the Company's customers and counterparties to adequately address Year 2000 issues could increase the likelihood that these customers and counterparties become delinquent or default on their obligations to the Company. Year 2000 issues also create additional fiduciary risk to the Company to the extent that the values of assets held in fiduciary accounts are negatively impacted by Year 2000 issues. In addition to increasing the Company's risk exposure to problem loans, credit losses, losses in fiduciary business and liquidity problems, Year 2000 issues expose the Company to increased risk of litigation losses and expenses relating to the foregoing. There are other Year 2000 risks besides those described above that may impact the Company's business, results of operations or financial condition.
There can be no assurances that the Company, its significant third party vendors or its significant customers and counterparties will adequately address their respective Year 2000 issues. Although the Company continues to assess the Year 2000 readiness of its significant third party vendors and its significant customers and counterparties, it is not possible at this time to determine the effect on the Company's business, results of operations or financial condition from the failure of any of these parties to be Year 2000 compliant.
The Year 2000 disclosures contained in this Form 10-Q are designated as Year 2000 Readiness Disclosures related to the Year 2000 Information and Readiness Disclosure Act. The forward-looking statements made in the foregoing Year 2000 discussion speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. The forward-looking statements in the foregoing Year 2000 discussion should be read with the cautionary statements included in the "Factors That May Affect Future Results" portion of the MD&A section of this report.
INCOME TAXES
The Company's effective income tax rate was 37% for the third quarter and first nine months of 1999, compared with 40% for the third quarter of 1998 and 39% for the first nine months of 1998. The lower effective rate for both the third quarter and the first nine months of 1999 compared to the same periods last year resulted from a reduction of state income tax and an increase in charitable donations of appreciated securities.
EARNINGS/RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI
The following table reconciles reported earnings to net income excluding goodwill and nonqualifying core deposit intangible amortization ("cash" or "tangible") for the quarter ended September 30, 1999.
-------------------------------------------------------------------------------------------------------------------
Quarter ended
(in millions, except per share amounts) Sept. 30, 1999
-------------------------------------------------------------------------------------------------------------------
Amortization
--------------------------
Nonqualifying
Reported core deposit "Cash"
earnings Goodwill intangible earnings
-------------------------------------------------------------------------------------------------------------------
Income before income tax expense $1,533 $106 $ 44 $1,683
Income tax expense 571 -- 16 587
------ ---- ---- ------
Net income 962 106 28 1,096
Preferred stock dividends 9 -- -- 9
------ ---- ---- ------
Net income applicable to common stock $ 953 $106 $ 28 $1,087
------ ---- ---- ------
------ ---- ---- ------
Earnings per common share $ .58 $.06 $.02 $ .66
------ ---- ---- ------
------ ---- ---- ------
Diluted earnings per common share $ .57 $.06 $.02 $ .65
------ ---- ---- ------
------ ---- ---- ------
-------------------------------------------------------------------------------------------------------------------
|
The ROA, ROE and efficiency ratios excluding goodwill and nonqualifying core deposit intangible amortization and related balances for the quarter ended September 30, 1999 were calculated as follows:
-----------------------------------------------------------------------------------------------------------
Quarter ended
(in millions) Sept. 30, 1999
-----------------------------------------------------------------------------------------------------------
ROA: A / (C-E-F) = 2.24 %
ROE: B / (D-E-G) = 34.33 %
Efficiency: (H-I) / J = 54.1 %
Net income $ 1,096 (A)
Net income applicable to common stock 1,087 (B)
Average total assets 202,972 (C)
Average common stockholders' equity 21,042 (D)
Average goodwill 7,674 (E)
Average pretax nonqualifying core deposit intangible 1,301 (F)
Average after-tax nonqualifying core deposit intangible 807 (G)
Noninterest expense 2,418 (H)
Amortization expense for goodwill and nonqualifying core deposit intangible 150 (I)
Net interest income plus noninterest income 4,191 (J)
-----------------------------------------------------------------------------------------------------------
|
These calculations were specifically formulated by the Company and may not be comparable to similarly titled measures reported by other companies. Also, "cash" or "tangible" earnings are not entirely available for use by management. See the Consolidated Statement of Cash Flows for other information regarding funds available for use by management.
BALANCE SHEET ANALYSIS
SECURITIES AVAILABLE FOR SALE
The following table provides the cost and fair value for the major components of securities available for sale (there were no securities held to maturity at the end of the periods presented):
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, 1999 Dec. 31, 1998 Sept. 30, 1998
--------------------- -------------------- -------------------
ESTIMATED Estimated Estimated
FAIR fair fair
(in millions) COST VALUE Cost value Cost value
-------------------------------------------------------------------------------------------------------------------
Securities of U.S. Treasury and
federal agencies $ 6,540 $ 6,276 $ 3,260 $ 3,287 $ 3,325 $ 3,385
Securities of U.S. states and
political subdivisions 2,054 2,048 1,683 1,794 1,689 1,797
Mortgage-backed securities:
Federal agencies 21,947 21,737 20,539 20,804 21,404 21,813
Private collateralized mortgage
obligations (1) 3,063 2,977 3,420 3,440 3,355 3,394
------- ------- ------- -------- ------- -------
Total mortgage-backed securities 25,010 24,714 23,959 24,244 24,759 25,207
Other 2,396 2,312 1,879 1,899 1,280 1,297
------- ------- ------- -------- ------- -------
Total debt securities 36,000 35,350 30,781 31,224 31,053 31,686
Marketable equity securities 500 1,556 386 773 390 524
------- ------- ------- -------- ------- -------
Total $36,500 $36,906 $31,167 $31,997 $31,443 $32,210
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
-------------------------------------------------------------------------------------------------------------------
|
(1) Substantially all private collateralized mortgage obligations are AAA rated bonds collateralized by 1-4 family residential first mortgages.
The following table provides the components of the unrealized net gain on securities available for sale. The unrealized net gain on securities available for sale is reported on an after-tax basis as a part of cumulative other comprehensive income in stockholders' equity.
-------------------------------------------------------------------------------------------------------------------
(in millions) SEPT. 30, 1999 Dec. 31, 1998 Sept. 30, 1998
-------------------------------------------------------------------------------------------------------------------
Unrealized gross gains $1,341 $919 $815
Unrealized gross losses (935) (89) (48)
------ ---- ----
Unrealized net gain $ 406 $830 $767
------ ---- ----
------ ---- ----
-------------------------------------------------------------------------------------------------------------------
|
The following table provides the components of the realized net gain on the sales of securities in the securities available for sale portfolio. The Company may decide to sell certain of the securities available for sale to manage the level of earning assets (for example, to offset loan growth that may exceed expected maturities and prepayments of securities).
-------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
-------------------- --------------------
(in millions) 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------------------------
Realized gross gains $ 7 $ 77 $ 52 $ 171
Realized gross losses (9) (1) (33) (10)
--- ---- ---- -----
Realized net (loss) gain $(2) $ 76 $ 19 $ 161
--- ---- ---- -----
--- ---- ---- -----
-------------------------------------------------------------------------------------------------------------------
|
The weighted average expected remaining maturity of the debt securities portion of the securities available for sale portfolio was 7 years and 2 months at September 30, 1999. Expected remaining maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without penalties.
At September 30, 1999, mortgage-backed securities, including collateralized mortgage obligations (CMOs) of $3.0 billion, were $24.7 billion, or 67%, of the Company's securities available for sale portfolio. The CMO securities held by the Company (including the private issues) are primarily shorter-maturity class bonds that were structured to have more predictable cash flows by being less sensitive to prepayments during periods of changing interest rates. As an indication of interest rate risk, the Company has estimated the effect of a 200 basis point increase in interest rates on the value of the mortgage-backed securities and the corresponding expected remaining maturities. Based on this rate scenario, mortgage-backed securities would decrease in fair value from $24.7 billion to $22.6 billion and the expected remaining maturity of these securities would increase from 6 years and 2 months to 7 years and 2 months.
LOAN PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------
% Change
Sept. 30, 1999 from
----------------------
SEPT. 30, Dec. 31, Sept. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998 1998 1998
-----------------------------------------------------------------------------------------------------------------------
Commercial (1) $37,222 $ 35,450 $ 35,012 5% 6%
Real estate 1-4 family first mortgage 12,375 11,496 12,333 8 --
Other real estate mortgage (2) 17,653 16,668 16,240 6 9
Real estate construction 4,381 3,790 3,748 16 17
Consumer:
Real estate 1-4 family junior lien mortgage 12,171 11,128 11,057 9 10
Credit card 5,347 5,795 5,686 (8) (6)
Other revolving credit and monthly payment 16,709 15,809 16,215 6 3
------- -------- --------
Total consumer 34,227 32,732 32,958 5 4
Lease financing 7,292 6,380 5,994 14 22
Foreign 1,559 1,478 1,407 5 11
------- -------- --------
Total loans (net of unearned income,
including net deferred loan fees, of
$3,003, $2,967 and $2,910) $14,709 $107,994 $107,692 6% 7%
------- -------- -------- -- --
------- -------- -------- -- --
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|
(1) Includes agricultural loans (loans to finance agricultural production and other loans to farmers) of $2,863 million, $2,979 million and $2,900 million at September 30, 1999, December 31, 1998 and September 30, 1998, respectively.
(2) Includes agricultural loans that are secured by real estate of $1,008 million, $923 million and $930 million at September 30, 1999, December 31, 1998 and September 30, 1998, respectively.
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1)
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
-------------------------------------------------------------------------------------------------------------------
Nonaccrual loans (1)(2)(3) $697 $709 $721
Restructured loans (4) 1 1 1
---- ---- ----
Nonaccrual and restructured loans 698 710 722
As a percentage of total loans .6% .7% .7%
Foreclosed assets 213 167 176
Real estate investments (5) 34 1 2
---- ---- ----
Total nonaccrual and restructured loans
and other assets $945 $878 $900
---- ---- ----
---- ---- ----
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|
(1) Excludes loans that are contractually past due 90 days or more as to interest or principal, but are both well-secured and in the process of collection or are real estate 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as nonaccrual.
(2) Includes commercial agricultural loans of $36 million, $32 million and $29 million and agricultural loans secured by real estate of $14 million, $12 million and $13 million at September 30, 1999, December 31, 1998 and September 30, 1998, respectively.
(3) Of the total nonaccrual loans, $365 million, $388 million and $448 million at September 30, 1999, December 31, 1998 and September 30, 1998, respectively, were considered impaired under FAS 114 (Accounting by Creditors for Impairment of a Loan).
(4) In addition to originated loans that were subsequently restructured, there were loans of none, $23 million and $23 million at September 30, 1999, December 31, 1998 and September 30, 1998, respectively, that were purchased at a steep discount whose contractual terms were modified after acquisition. The modified terms did not affect the book balance or the yields expected at the date of purchase. Of the total restructured loans and loans purchased at a steep discount, none, $23 million and $23 million were considered impaired under FAS 114 at September 30, 1999, December 31, 1998 and September 30, 1998, respectively.
(5) Represents the amount of real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if such assets were loans. Real estate investments totaled $108 million, $128 million and $134 million at September 30, 1999, December 31, 1998 and September 30, 1998, respectively.
The Company generally identifies loans to be evaluated for impairment under FAS 114, Accounting by Creditors for Impairment of a Loan, when such loans are on nonaccrual or have been restructured. However, not all nonaccrual loans are impaired. Generally, a loan is placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless both well-secured and in the process of collection), when the full timely collection of interest or principal becomes uncertain or when a portion of the principal balance has been charged off. Real estate 1-4 family loans (both first liens and junior liens) are placed on nonaccrual status within 120 days of becoming past due as to interest or principal, regardless of security. In contrast, under FAS 114, loans are considered impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructuring agreement. Not all impaired loans are necessarily placed on nonaccrual status. That is, restructured loans performing under restructured terms beyond a specified performance period are classified as accruing but may still be deemed impaired under FAS 114.
For loans covered under FAS 114, the Company makes an assessment for impairment when and while such loans are on nonaccrual, or the loan has been restructured. When a loan with unique risk characteristics has been identified as being impaired, the Company will measure the amount of impairment using discounted cash flows, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the underlying collateral. In such cases, the current
fair value of the collateral, reduced by costs to sell, will be used in place of discounted cash flows. Additionally, some impaired loans with commitments of less than $1 million are aggregated for the purpose of measuring impairment using historical loss factors as a means of measurement.
If the measurement of the impaired loan results in a value that is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs and unamortized premium or discount), an impairment is recognized by creating or adjusting an existing allocation of the allowance for loan losses. FAS 114 does not change the timing of charge-offs of loans to reflect the amount ultimately expected to be collected.
In accordance with FAS 114, the table below shows the recorded investment in impaired loans and the related methodology used to measure impairment for the periods presented:
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
-------------------------------------------------------------------------------------------------------------------
Impairment measurement based on:
Collateral value method $306 $329 $356
Discounted cash flow method 52 67 97
Historical loss factors 7 15 18
---- ---- ----
Total (1)(2) $365 $411 $471
---- ---- ----
---- ---- ----
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(1) Includes accruing loans of none, $23 million and $23 million purchased at a steep discount at September 30, 1999, December 31, 1998 and September 30, 1998, respectively, whose contractual terms were modified after acquisition. The modified terms did not affect the book balance nor the yields expected at the date of purchase.
(2) Includes $216 million, $155 million, and $126 million of impaired loans with a related FAS 114 allowance of $38 million, $37 million and $35 million at September 30, 1999, December 31, 1998 and September 30, 1998, respectively.
The average recorded investment in impaired loans was $366 million and $480 million during the third quarter of 1999 and 1998, respectively, and $373 million and $469 million during the first nine months of 1999 and 1998, respectively. Total interest income recognized on impaired loans was $2 million and $4 million during the third quarter of 1999 and 1998, respectively, and $6 million and $11 million during the first nine months of 1999 and 1998, respectively, which was primarily recorded using the cash method.
The Company uses either the cash or cost recovery method to record cash receipts on impaired loans that are on nonaccrual. Under the cash method, contractual interest is credited to interest income when received. This method is used when the ultimate collectibility of the total principal is not in doubt. Under the cost recovery method, all payments received are applied to principal. This method is used when the ultimate collectibility of the total principal is in doubt. Loans on the cost recovery method may be changed to the cash method when the application of the cash payments has reduced the principal balance to a level where collection of the remaining recorded investment is no longer in doubt.
The Company anticipates normal influxes of nonaccrual loans as it further increases its lending activity as well as resolutions of loans in the nonaccrual portfolio. The performance of any individual loan can be affected by external factors, such as the interest rate environment or factors particular to a borrower such as actions taken by a borrower's management. In addition, from time to time, the Company purchases loans from other financial institutions that may be classified as nonaccrual based on its policies.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
The following table shows loans contractually past due 90 days or more as to interest or principal, but not included in the nonaccrual or restructured categories. All loans in this category are both well-secured and in the process of collection or are real estate 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as nonaccrual because they are automatically charged off after being past due for a prescribed period. Notwithstanding, real estate 1-4 family loans (first liens and junior liens) are placed on nonaccrual within 120 days of becoming past due and such nonaccrual loans are excluded from the following table.
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
-------------------------------------------------------------------------------------------------------------------
Commercial $ 43 $ 9 $ 20
Real estate 1-4 family first mortgage 29 17 21
Other real estate mortgage 46 41 52
Real estate construction 6 6 9
Consumer:
Real estate 1-4 family junior lien mortgage 34 63 68
Credit card 102 140 136
Other revolving credit and monthly payment 206 180 247
---- ---- ----
Total consumer (1) 342 383 451
---- ---- ----
Total $466 $456 $553
---- ---- ----
---- ---- ----
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|
(1) Consumer loans at December 31, 1998 and September 30, 1998 have been revised to include Norwest Financial loans of $114 million and $175 million, respectively, that were contractually past due 90 days or more as to interest or principal.
ALLOWANCE FOR LOAN LOSSES
-------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
---------------------- ----------------------
(in millions) 1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------
BALANCE, BEGINNING OF PERIOD $3,165 $3,098 $ 3,134 $ 3,062
Allowances related to business combinations, net 3 83 38 118
Provision for loan losses 240 307 770 921
Loan charge-offs:
Commercial (93) (67) (285) (189)
Real estate 1-4 family first mortgage (3) (6) (22) (18)
Other real estate mortgage (8) (23) (20) (42)
Real estate construction -- -- (1) (2)
Consumer:
Real estate 1-4 family junior lien mortgage (7) (5) (22) (18)
Credit card (93) (127) (299) (409)
Other revolving credit and monthly payment (122) (158) (358) (493)
------ ------ ------- -------
Total consumer (222) (290) (679) (920)
Lease financing (9) (11) (30) (35)
Foreign (18) (25) (57) (47)
------ ------ ------- -------
Total loan charge-offs (353) (422) (1,094) (1,253)
------ ------ ------- -------
Loan recoveries:
Commercial 25 18 61 60
Real estate 1-4 family first mortgage 3 4 6 9
Other real estate mortgage 4 27 33 68
Real estate construction -- 1 4 3
Consumer:
Real estate 1-4 family junior lien mortgage 3 1 10 5
Credit card 10 14 36 44
Other revolving credit and monthly payment 60 31 149 112
------ ------ ------- -------
Total consumer 73 46 195 161
Lease financing 3 4 9 10
Foreign 4 4 11 11
------ ------ ------- -------
Total loan recoveries 112 104 319 322
------ ------ ------- -------
Total net loan charge-offs (241) (318) (775) (931)
------ ------ ------- -------
BALANCE, END OF PERIOD $3,167 $3,170 $ 3,167 $ 3,170
------ ------ ------- -------
------ ------ ------- -------
Total net loan charge-offs as a percentage
of average loans (annualized) .85% 1.18% .94% 1.18%
------ ------ ------- -------
------ ------ ------- -------
Allowance as a percentage of total loans 2.76% 2.94% 2.76% 2.94%
------ ------ ------- -------
------ ------ ------- -------
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|
The Company considers the allowance for loan losses of $3,167 million adequate to cover losses inherent in loans, commitments to extend credit and standby letters of credit at September 30, 1999. The Company's determination of the level of the allowance and, correspondingly, the provision for loan losses rests upon various judgments and assumptions, including general economic conditions, loan portfolio composition, prior loan loss experience and the ongoing examination process by the Company and its regulators.
INTEREST RECEIVABLE AND OTHER ASSETS
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
-------------------------------------------------------------------------------------------------------------------
Nonmarketable equity investments $ 2,687 $ 2,392 $ 2,199
Government National Mortgage Association
(GNMA) pool buy outs 1,983 1,624 911
Trading assets 2,326 760 1,243
Interest receivable 1,203 1,062 1,140
Foreclosed assets 213 167 176
Certain identifiable intangible assets 235 212 254
Due from customers on acceptances 99 128 163
Interest earning deposits 87 113 88
Other 5,282 4,436 4,178
------- ------- -------
Total interest receivable and other assets $14,115 $10,894 $10,352
------- ------- -------
------- ------- -------
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|
Income from nonmarketable equity investments accounted for using the cost method was $35 million and $32 million in the third quarter of 1999 and 1998, respectively, and $99 million and $116 million in the first nine months of 1999 and 1998, respectively.
The increase in GNMA pool buy outs was due to additional advances made to GNMA mortgage pools that are guaranteed by the Federal Housing Administration or by the Department of Veterans Affairs (collectively, "the guarantors"). These advances are made to buy out government agency-guaranteed delinquent loans, pursuant to the Company's servicing agreements. The Company, on behalf of the guarantors, undertakes the collection and foreclosure process. After the foreclosure process is complete, the Company is reimbursed for substantially all costs incurred, including the advances, by the guarantors.
Trading assets consist predominantly of securities, including corporate debt and U.S. government agency obligations. The increase at September 30, 1999 compared with December 31, 1998 was primarily due to an increase in U.S. Treasury securities. Noninterest income from trading assets was $6 million and $36 million in the third quarter of 1999 and 1998, respectively, and $71 million and $140 million in the first nine months of 1999 and 1998, respectively.
Amortization expense for certain identifiable intangible assets included in other assets was $11 million and $15 million in the third quarter of 1999 and 1998, respectively, and $34 million and $60 million in the first nine months of 1999 and 1998, respectively.
DEPOSITS
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
-------------------------------------------------------------------------------------------------------------------
Noninterest-bearing $ 41,872 $ 46,732 $ 40,951
Interest-bearing checking 2,736 2,908 2,931
Market rate and other savings 55,641 55,152 52,030
Savings certificates 24,911 27,497 27,880
-------- -------- --------
Core deposits 125,160 132,289 123,792
Other time deposits 3,213 3,753 3,880
Deposits in foreign offices 3,184 746 2,279
-------- -------- --------
Total deposits $131,557 $136,788 $129,951
-------- -------- --------
-------- -------- --------
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CAPITAL ADEQUACY/RATIOS
The Company and each of the subsidiary banks are subject to various regulatory
capital adequacy requirements administered by the Federal Reserve Board and the
Office of the Comptroller of the Currency. Risk-based capital (RBC) guidelines
establish a risk-adjusted ratio relating capital to different categories of
assets and off-balance sheet exposures.
------------------------------------------------------------------------------------------------------------------
To be well
capitalized under
the FDICIA
For capital prompt corrective
Actual adequacy purposes action provisions
----------------- ------------------ -------------------
(in billions) Amount Ratio Amount Ratio Amount Ratio
--------------------------------------- -------- ------ ------- ------ ------- -------
As of September 30, 1999:
Total capital (to risk-weighted assets)
> >
Wells Fargo & Company $18.2 11.30 % - $12.9 - 8.00%
> > > >
Norwest Bank Minnesota, N.A. 2.4 12.34 - 1.5 - 8.00 - $1.9 - 10.00%
> > > >
Wells Fargo Bank, N.A. 8.5 12.02 - 5.6 - 8.00 - 7.0 - 10.00
Tier 1 capital (to risk-weighted assets)
> >
Wells Fargo & Company $14.0 8.71 % - $6.4 - 4.00%
> > > >
Norwest Bank Minnesota, N.A. 2.1 10.69 - .8 - 4.00 - $ 1.2 - 6.00%
> > > >
Wells Fargo Bank, N.A. 5.7 8.15 - 2.8 - 4.00 - 4.2 - 6.00
Tier 1 capital (to average assets)
(Leverage ratio)
> >
Wells Fargo & Company $14.0 7.22 % - $7.8 - 4.00% (1)
> > > >
Norwest Bank Minnesota, N.A. 2.1 6.14 - 1.3 - 4.00 (1) - $ 1.7 - 5.00%
> > > >
Wells Fargo Bank, N.A. 5.7 7.12 - 3.2 - 4.00 (1) - 4.0 - 5.00
-----------------------------------------------------------------------------------------------------------------
|
(1) The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding goodwill and certain other items. The minimum leverage ratio guideline is 3% for banking organizations that have implemented the risk-based capital measure for market risk, and for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good earnings, effective management and monitoring of market risk and, in general, are considered top-rated, strong banking organizations.
DERIVATIVE FINANCIAL INSTRUMENTS
The following table summarizes the aggregate notional or contractual amounts, credit risk amount and net fair value of the Company's derivative financial instruments at September 30, 1999 and December 31, 1998.
-----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 December 31, 1998
--------------------------------------------- ------------------------------------------
NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated
CONTRACTUAL RISK FAIR contractual risk fair
(in millions) AMOUNT AMOUNT (3) VALUE amount amount (3) value
-----------------------------------------------------------------------------------------------------------------------------------
ASSET/LIABILITY MANAGEMENT
HEDGES
Interest rate contracts:
Swaps (1) $32,636 $ 170 $(43) $24,429 $735 $686
Futures 55,860 -- -- 62,348 -- --
Floors and caps (1) 41,877 210 210 33,598 504 504
Options (1)(2) 19,255 35 53 25,822 112 101
Forwards (1) 34,096 92 (29) 41,283 11 (58)
Foreign exchange contracts:
Forward contracts (1) 91 -- (1) 168 -- (1)
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Swaps (1) 15,605 99 (5) 7,795 81 10
Futures 25,502 -- -- 8,440 -- --
Floors and caps purchased (1) 6,254 57 57 5,619 42 42
Floors and caps written 5,736 -- (59) 5,717 -- (42)
Options purchased 650 -- -- -- -- --
Options written 950 -- -- -- -- --
Forwards (1) 171 4 1 850 24 4
Commodity contracts:
Swaps (1) 114 11 -- 78 4 --
Floors and caps purchased (1) 38 3 3 4 -- --
Floors and caps written 38 -- (3) 4 -- --
Foreign exchange contracts:
Forwards and spots (1) 4,287 67 13 3,524 37 2
Options purchased (1) 46 -- -- 44 2 2
Options written 40 -- -- 43 -- (2)
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|
(1) The Company anticipates performance by substantially all of the
counterparties for these contracts or the underlying financial instruments.
(2) At September 30, 1999, a significant portion of purchase option contracts
were options on futures contracts, which are exchange traded for which the
exchange assumes counterparty risk.
(3) Credit risk amounts reflect the replacement cost for those contracts in a
gain position in the event of nonperformance by counterparties.
The Company enters into a variety of financial contracts, which include interest rate futures and forward contracts, interest rate floors and caps, options and interest rate swap agreements. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. Because the contract or notional amount does not represent amounts exchanged by the parties, it is not a measure of loss exposure related to the use of derivatives nor of exposure to liquidity risk. The Company is primarily an end-user of these instruments. The Company also offers such contracts to its customers but offsets these contracts by purchasing other financial contracts or uses the contracts for asset/liability management. To a lesser extent, the Company
takes positions based on market expectations or to benefit from price differentials between financial instruments and markets.
The Company is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. The Company controls the credit risk of its financial contracts except for contracts for which credit risk is DE MINIMUS through credit approvals, limits and monitoring procedures. Credit risk related to derivative financial instruments is considered and, if material, provided for separately from the allowance for loan losses. As the Company generally enters into transactions only with high quality counterparties, losses associated with counterparty nonperformance on derivative financial instruments have been immaterial. Further, the Company obtains collateral where appropriate and uses master netting arrangements in accordance with FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts, as amended by FASB Interpretation No. 41, Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements.
LIQUIDITY AND CAPITAL MANAGEMENT
The Company manages its liquidity and capital at both the parent and subsidiary levels.
In addition to the immediately liquid resources of cash and due from banks and federal funds sold and securities purchased under resale agreements, asset liquidity is provided by the Company's securities available for sale portfolio.
Liquidity for the Parent is provided by dividend and interest income from its subsidiaries, potential disposition of readily marketable assets and through its ability to raise funds in a variety of domestic and international money and capital markets. In the second quarter of 1999, the Company issued the $.6 billion remaining on its registration statement filed with the SEC in 1996 in the form of Medium-Term Notes. The Company subsequently filed a new shelf registration statement with the SEC that allows for the issuance of $10 billion in debt and equity securities, excluding common stock, other than common stock issuable upon the exercise or conversion of debt and equity securities. This registration statement became effective June 16, 1999, and together with the $150 million issuance authority remaining on the Company's registration statements filed in 1993 and 1995, permits the Company to issue an aggregate of $10.15 billion in such debt and equity securities. As of September 30, 1999, the Company had issued $3.0 billion of securities and had established a program to issue, from time to time, Medium-Term Notes, Series A and Subordinated Medium-Term Notes, Series B in the aggregate principal amount of up to $7.15 billion from the $10.15 billion available for issuance under the registration statements described above. In 1996, the Parent also established a $2 billion Euro Medium-Term Note program (Euro MTN) and as of September 30, 1999 had issued $300 million under that program. The proceeds from the sales of any securities are expected to be used for general corporate purposes.
In September of 1999, the Board of Directors authorized the repurchase of up to 82 million additional shares of the Company's outstanding common stock. These shares, to be purchased at market price, are part of the Company's ongoing systematic pattern of common stock repurchases to meet the common stock issuance requirements of the Company's benefit plans and conversion of convertible securities, and for other Company purposes, including
acquisitions accounted for as purchases and for managing the Company's capital position. As of September 30, 1999, the total remaining common stock purchase authority was approximately 83 million shares.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which the Company is exposed is interest rate risk. The majority of the Company's interest rate risk arises from the instruments, positions and transactions entered into for purposes other than trading. They include loans, securities available for sale, deposit liabilities, short-term borrowings, long-term debt and derivative financial instruments used for asset/liability management. Interest rate risk occurs when assets and liabilities reprice at different times as interest rates change. For example, if fixed-rate assets are funded with floating-rate debt, the spread between asset and liability rates will decline or turn negative if rates increase. The Company refers to this type of risk as "term structure risk." There is, however, another source of interest rate risk which results from changing spreads between asset and liability rates. The Company calls this type of risk "basis risk;" it is a significant source of interest rate risk for the Company and is more difficult to quantify and manage than term structure risk. Two primary components of basis risk for the Company are the spread between prime-based loans and market rate account (MRA) savings deposits and the rate paid on savings and interest-bearing checking accounts as compared to LIBOR-based loans.
Interest rate risk is managed within an overall asset/liability framework for the Company. The principal objectives of asset/liability management are to manage the sensitivity of net interest spreads and net income to potential changes in interest rates and to enhance profitability in ways that promise sufficient reward for understood and controlled risk. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is properly managed. The Company employs a sensitivity analysis in the form of a net interest income simulation to help characterize the market risk arising from changes in interest rates in the other-than-trading portfolio.
The Company's net interest income simulation includes all other-than-trading financial assets, financial liabilities, derivative financial instruments and leases where the Company is the lessor. It captures the dynamic nature of the balance sheet by anticipating probable balance sheet and off-balance sheet strategies and volumes under different interest rate scenarios over the course of a one-year period. This simulation measures both the term structure risk and the basis risk in the Company's positions. The simulation also captures the option characteristics of products, such as caps and floors on floating rate loans, the right to prepay mortgage loans without penalty and the ability of customers to withdraw deposits on demand. These options are modeled directly in the simulation either through the use of option pricing models, in the case of caps and floors on loans, or through statistical analysis of historical customer behavior, in the case of mortgage loan prepayments or non-maturity deposits.
The simulation model is used to measure the impact on net income, relative to a base case scenario, of interest rates increasing or decreasing 100 basis points over the next 12 months. At September 30, 1999, the simulation showing the largest drop in net income relative to the base case scenario over the next twelve months is a 100 basis point increase in rates that would result in a decrease in net income of $65 million. In the simulation that was run at December 31, 1998, the largest drop in net income relative to the base case scenario over the next twelve months was a 100 basis point increase in rates that would result in a decrease in net income of $26 million.
The Company uses interest rate derivative financial instruments as asset/liability management tools to hedge mismatches in interest rate exposures indicated by the net interest income simulation described above. They are used to reduce the Company's exposure to interest rate fluctuations and provide more stable spreads between loan yields and the rates on their funding sources. For example, the Company uses interest rate futures to shorten the rate maturity of MRA savings deposits to better match the maturity of prime-based loans. The Company also purchases interest rate floors to protect against the loss in interest income on LIBOR-based loans during a declining interest rate environment. Additionally, receive-fixed rate swaps are used to convert floating-rate loans into fixed rates to better match the liabilities that fund the loans. The Company also uses derivatives including floors, futures contracts and options on futures contracts to hedge the Company's mortgage servicing rights.
The Company considers the fair values and the potential near term losses to future earnings related to its customer accommodation derivative financial instruments to be immaterial.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(a) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(b) to the Company's Current Report on Form 8-K dated June 28, 1993. Certificates of Amendment of Certificate of Incorporation, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated July 3, 1995 (authorizing preference stock), and Exhibits 3(b) and 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (changing the Company's name and increasing authorized common and preferred stock, respectively)
(b) Certificate of Change of Location of Registered Office and Change of Registered Agent, incorporated by reference to Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
3(c) Certificate of Designations for the Company's ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994
(d) Certificate of Designations for the Company's Cumulative Tracking Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated January 9, 1995
(e) Certificate of Designations for the Company's 1995 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
(f) Certificate Eliminating the Certificate of Designations for the Company's Cumulative Convertible Preferred Stock, Series B, incorporated by reference to Exhibit 3(a) to the Company's Current Report on Form 8-K dated November 1, 1995
(g) Certificate Eliminating the Certificate of Designations for the Company's 10.24% Cumulative Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated February 20, 1996
(h) Certificate of Designations for the Company's 1996 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated February 26, 1996
(i) Certificate of Designations for the Company's 1997 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated April 14, 1997
(j) Certificate of Designations for the Company's 1998 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated April 20, 1998
(k) Certificate of Designations for the Company's Adjustable Cumulative Preferred Stock, Series B, incorporated by reference to Exhibit 3(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(l) Certificate of Designations for the Company's Fixed/Adjustable Rate Noncumulative Preferred Stock, Series H, incorporated by reference to Exhibit 3(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(m) Certificate of Designations for the Company's Series C Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(l) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998
3(n) Certificate Eliminating the Certificate of Designations for the Company's Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(a) to the Company's Current Report on Form 8-K dated April 21, 1999
(o) Certificate of Designations for the Company's 1999 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3(b) to the Company's Current Report on Form 8-K dated April 21, 1999
(p) By-Laws, incorporated by reference to Exhibit 3(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998
4(a) See Exhibits 3(a) through 3(p)
(b) Rights Agreement, dated as of October 21, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A dated October 21, 1998
(c) The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company.
10(a) Supplemental 401(k) Plan, as amended and restated effective July 1, 1999
(b) Supplemental Cash Balance Plan, as amended and restated effective July 1, 1999
(c) Deferred Compensation Plan for Non-Employee Directors of the former Norwest, as amended and restated effective September 28, 1999
(d) Directors' Stock Deferral Plan for directors of the former Norwest, as amended and restated effective September 28, 1999
(e) Directors' Formula Stock Award Plan for directors of the former Norwest, as amended and restated effective September 28, 1999
27 Financial Data Schedule
99(a) Computation of Ratios of Earnings to Fixed Charges -- the ratios of earnings to fixed charges, including interest on deposits, were 2.18 and 1.94 for the quarters ended September 30, 1999 and 1998, respectively, and 2.17 and 1.91 for the nine months ended September 30, 1999 and 1998, respectively. The ratios of earnings to fixed charges, excluding interest on deposits, were 3.48 and 3.38 for the quarters ended September 30, 1999 and 1998, respectively, and 3.61 and 3.29 for the nine months ended September 30, 1999 and 1998, respectively.
99(b) Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends -- the ratios of earnings to fixed charges and preferred dividends, including interest on deposits, were 2.16 and 1.92 for the quarters ended September 30, 1999 and 1998, respectively, and 2.15 and 1.89 for the nine months ended September 30, 1999 and 1998, respectively. The ratios of earnings to fixed charges and preferred dividends, excluding interest on deposits, were 3.40 and 3.29 for the quarters ended September 30, 1999 and 1998, respectively, and 3.53 and 3.20 for the nine months ended September 30, 1999 and 1998, respectively.
(b) The Company filed the following reports on Form 8-K during the third quarter of 1999:
1 July 20, 1999 under Item 5, containing the Company's financial results for the quarter ended June 30, 1999
2 July 28, 1999 under Item 7, Underwriting Agreement and Indenture dated as of July 21, 1999 relating to the Company's offering of 6 5/8% Notes due 2004 in the aggregate principal amount of $1.5 billion
3 September 8, 1999 under Item 7, Indenture dated as of August 30, 1999 and Distribution Agreement dated as of September 2, 1999 relating to the establishment of a Medium-Term Note Program, Series A and a Subordinated Medium-Term Note Program, Series B
4 September 29, 1999 under Item 5, containing the Press Release announcing the Company's additional share repurchase authorization
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 15, 1999.
WELLS FARGO & COMPANY
(Principal Accounting Officer)
EXHIBIT 10(a)
WELLS FARGO & COMPANY
SUPPLEMENTAL 401(k) PLAN
(As Amended and Restated Effective July 1, 1999)
Sec. 1 NAME AND PURPOSE. The name of the Plan is the "Wells Fargo & Company Supplemental 401(k) Plan" (the "Plan"). The Plan amends and restates the Norwest Corporation Supplemental Savings Investment Plan. This Plan, as amended and restated, shall be effective July 1, 1999. This Plan is maintained by Wells Fargo & Company (the "Company") for the purposes of providing benefits to participants in the Wells Fargo & Company 401(k) Plan (the "401(k) Plan") whose contributions to the 401(k) Plan are limited by Internal Revenue Code (the "Code") section 401(a)(17) and providing benefits to eligible employees who have chosen to defer compensation into a nonqualified deferred compensation plan maintained by the Company that would otherwise be available for contributions to the 401(k) Plan.
Sec. 2 DEFINITIONS. All references herein to the "401(k) Plan" are references to the Wells Fargo & Company 401(k) Plan (formerly known as the Norwest Corporation Savings Investment Plan) as it may be amended from time to time. In addition, except where specifically defined in this Plan, all capitalized terms herein shall have the same meaning as given to those terms in the 401(k) Plan.
Sec. 3 NONQUALIFIED CERTIFIED COMPENSATION. Nonqualified Certified Compensation for purposes of the credits to Plan Accounts under Section 8 means a participant's base pay and all approved commissions, bonuses and incentive payments paid to the participant by the Company or a Participating Employer during a particular pay period subject to the following:
(a) Nonqualified Certified Compensation shall include any Salary
Deferral Contributions on behalf of a participant under the
401(k) Plan, and any salary reduction contributions to any
cafeteria plan under Code section 125 maintained by a
Participating Employer. Nonqualified Certified Compensation
includes salary continuation pay paid in regular monthly or more
frequent installments to a participant placed on a leave that is
classified by his or her Participating Employer as a salary
continuation leave of absence, but does not include any lump sum
severance payment.
(b) Nonqualified Certified Compensation shall include payments under the Executive Incentive Compensation Plan approved by the Human Resources Committee of the Board of Directors of the Company and payments under any other commission, bonus or incentive compensation programs or plans which the Company designates as included in
Nonqualified Certified Compensation by written action of the Chairman, President or the Executive Vice President of Human Resources. Notwithstanding the previous sentence, payments under any such commission, bonus or incentive compensation plan shall not be included in Nonqualified Certified Compensation to the extent those payments exceed any limit the Company establishes in such written action.
(c) Nonqualified Certified Compensation shall include deferrals of base pay, approved commissions, bonuses and incentive payments for a participant who has entered into a written agreement with the Company or any other Participating Employer under which payment of such compensation will be deferred to a stated year subsequent to the year in which it would otherwise have been paid to the participant.
(d) Nonqualified Certified Compensation for a participant who has entered into a written agreement with the Company or any other Participating Employer to defer compensation that would have been Certified Compensation under the 401(k) Plan if it had not been deferred shall include all such deferred compensation.
(e) Notwithstanding the foregoing provisions of this section, solely
for purposes of allocating Employer Matching Contributions under
Section 8, any Nonqualified Certified Compensation paid to a
participant while the participant is employed in a position
subject to this subsection (e) shall be disregarded to the extent
such Nonqualified Certified Compensation exceed $20,000 for a
Plan Year.
(i) This subsection (e) applies to any participant who is employed in the Mortgage Sales Representative job category or in any other job category which the Company classifies as equivalent to the Mortgage Sales Representative category.
(ii) If a participant is transferred into a position that is subject to this subsection (e) during a Plan Year, the $20,000 limit under this subsection for that Plan Year shall be reduced (but not below $0) by the amount of Nonqualified Certified Compensation credited to the participant for service during that Plan Year prior to the date the transfer occurred.
Sec. 4 COMPANY AND PARTICIPATING EMPLOYERS. The "Company" is Wells
Fargo & Company (formerly known as Norwest Corporation), a Delaware corporation,
and any successor to said corporation. Each Participating Employer in the
401(k) Plan shall also be a Participating Employer in this Plan if any of its
employees are eligible to become participants in this Plan.
Sec. 5 PARTICIPATION. Employees of the Company or of any other Participating Employer and who satisfy one or more of the following criteria are eligible to participate in this Plan:
(a) Employees who have satisfied one year of Vesting Service under the 401(k) Plan and who enter into a written agreement with their respective Participating Employer under which payment of compensation earned by the participant will be deferred to a stated year subsequent to the year in which it would otherwise have been recognized as Certified Compensation under the 401(k) Plan. The compensation of a participant that is so deferred is referred to in this Plan as "Deferred Compensation."
(b) Employees who have satisfied one year of Vesting Service under the 401(k) Plan and whose Salary Deferral Contributions and/or Employer Matching Contributions for any Plan Year commencing on or after January 1, 1989, are limited by Code Section 401(a)(17).
Sec. 6 ESTABLISHMENT OF PLAN ACCOUNT. An account (a "Plan Account") shall be established under this Plan for each participant.
Sec. 7 CREDITS BASED ON DEFERRED COMPENSATION. For each Plan Year in which a participant described in Section 5(a) has Deferred Compensation, the participant's Plan Account shall receive credits equal to the Employer Matching Contributions that would have been made to the participant's 401(k) Plan Account if the participant's Deferred Compensation for the Plan Year had been included in Certified Compensation under the 401(k) Plan for such Plan Year, minus the total Employer Matching Contributions made to the 401(k) Plan on behalf of the participant for that Plan Year. For purposes of this section:
(a) It will be assumed that the participant made Salary Deferral Contributions with respect to his or her Deferred Compensation at the rate selected by the participant with regard to Certified Compensation under the 401(k) Plan for the quarter in which the Deferred Compensation would otherwise have been paid.
(b) Each such participant's Plan Account shall receive credits under this section as of the end of the Plan Year in which an Employer Matching Contribution would otherwise have been reflected in the participant's 401(k) Plan. A participant shall receive credits under this section for the portion of the Plan Year in which the participant had Deferred Compensation even if the participant terminates employment prior to the end of the Plan Year.
Sec. 8 CREDITS BASED ON LIMIT ON CONTRIBUTIONS. The Plan Account of each participant described in Section 5(b) shall receive credits equal to the Employer Matching Contributions that would have been made to the 401(k) Plan for the participant for the Plan Year if the limit specified in Section 5(b) did not apply for that Plan Year and the definition of Nonqualified Certified Compensation in Section 3 of this Plan applied to the 401(k) Plan for that Plan Year. For purposes of this section:
(a) It will be assumed that the participant continued to make Salary Deferral Contributions during the remainder of the Plan Year equal to the rate of Salary Deferral Contributions selected by the participant for the quarter in which the participant first reached the limit specified in Section 5(b). It will be further assumed that the Nonqualified Certified Compensation for the Plan Year of a participant as defined in Section 3 included his or her Deferred Compensation for the Plan Year.
(b) The maximum credit under this Section 8 to the participant's Plan
Account for any Plan Year shall be equal to the Employer Matching
Contributions for the entire Plan Year based on the rate of
Salary Deferral Contributions selected by the participant in the
401(k) Plan (not to exceed the maximum percentage of Certified
Compensation eligible for Employer Matching Contributions under
the 401(k) Plan) for the quarter in which the participant first
reached the limit specified in Section 5(b) and computed using
the definition of Nonqualified Certified Compensation in Section
3 of this Plan as if such limit did not apply, minus (i) the
total Employer Matching Contributions made to the 401(k) Plan on
behalf of that participant for that Plan Year, and (ii) any
credits the participant received for that Plan Year under Section
7.
(c) Credits under this section shall be reflected in the participant's Plan Account as of the end of the Plan Year in which an Employer Matching Contribution would have been reflected in the participant's 401(k) Plan Account if the limit specified in Section 5(b) did not apply for that Plan Year. A participant shall receive credits under this section even if the participant terminates employment prior to the end of the Plan Year.
Sec. 9 INVESTMENT OF CREDITS. Prior to September 30, 1991, credits
to a participant's Plan Account were allocated to one or more of the "Investment
Funds" defined in Section 10 of this Plan. On and after September 30, 1991, no
changes in Investment Funds existing as of that date are allowed and all credits
allocated to a participant's Plan Account on and after September 30, 1991 are
allocated solely to the Wells Fargo & Company Stock Investment Fund described in
Section 10(c).
Sec. 10 ADJUSTMENT AND FUNDING OF ACCOUNTS. Credits to a
participant's Plan Account shall be subject to the following:
(a) Prior to September 30, 1991, the Investment Funds available to participants under the Plan for each calendar quarter were the same as the Investment Funds (other than the ESOP Fund) which were available as investment options under the Norwest Corporation Savings Investment Plan for that quarter.
(b) Except as provided in subsection (c), each Investment Fund will reflect the investment performance of the corresponding 401(k) Plan Investment Fund on a pro rata basis. If one or more 401(k) Plan Investment Funds are merged, divided, discontinued or otherwise adjusted, corresponding adjustments shall be made in the credits held in Investment Accounts under this Plan.
(c) All credits made to the participant's Plan Account on and after September 30, 1991 shall be allocated to the "Wells Fargo & Company Stock Investment Fund." Such credits shall be stated in the form of shares of Company common stock, the number of which shall be determined by dividing the amount of the credits made pursuant to Sections 7 or 8 of this Plan for a Plan Year by the closing price per share of Company common stock reported on the consolidated tape of the New York Stock Exchange as of December 31 of that Plan Year. If December 31 is not a trading date, the closing price per share of Company common stock reported on the trading date immediately preceding that December 31 shall be used. Adjustments to the number of shares of Company common stock credited to the participant's Wells Fargo & Company Stock Investment Fund in his or her Plan Account shall be made to reflect dividends paid on Company common stock pursuant to subsection (e) below. If the Company chooses to fund the credits to the Wells Fargo & Company Investment Fund, the Company shall make contributions in cash or in Company common stock to the trust described in Section 21. Any cash contributions shall be used by the trustee to purchase shares of Company common stock within 10 business days after such deposit. Purchase of such shares may be made by the trustee in brokerage transactions or by private purchase, including purchase from the Company. All shares held by the trust shall be held in the name of the trustee.
(d) All Plan Account credits shall consist solely of bookkeeping entries.
(e) Each time a dividend is paid on the Company common stock, the participant shall receive a credit to the Wells Fargo & Company Stock Investment Fund in his or her Plan Account. The amount of the dividend credit shall be the number of shares of Company common stock determined by multiplying the dividend amount per share by the number of
shares credited to a participant's Wells Fargo & Company Stock Investment Fund as of the record date for the dividend and dividing the product by the closing price per share of Company common stock reported on the consolidated tape of the New York Stock Exchange as of the trading date immediately preceding the dividend payment date.
Sec. 11 PLAN ACCOUNT STATEMENTS. The Company may from time to time issue statements to participants advising them of the status of their Plan Accounts, but shall not be required to do so. The issuance of such statements shall not in any way affect the rights of participants hereunder.
Sec. 12 NUMBER OF SHARES UNDER THE PLAN/ADJUSTMENTS FOR CERTAIN CHANGES IN CAPITALIZATION. Since April 23, 1992, no more than 1,000,000 shares of Company common stock may be credited to Plan Accounts except that any share credits to a Plan Account which are forfeited pursuant to Section 15 may again be credited under the Plan. If the Company shall at any time increase or decrease the number of its outstanding shares of Company common stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Company common stock, or through a stock split, subdivision, consolidation, combination, reclassification, or re-capitalization involving the Company common stock, then the numbers, rights, and privileges of the shares that are and may be credited to the Wells Fargo & Company Stock Investment Fund under the Plan shall be increased, decreased, or changed in like manner as if such shares had been issued and outstanding, fully paid, and non-assessable at the time of such occurrence.
Sec. 13. VOTING COMPANY COMMON STOCK. If any credits issued pursuant to this Plan are, in the discretion of the Company, funded in a trust as described in Section 21, the Company common stock held in trust shall be voted by the trustee in its discretion.
Sec. 14 LOANS AND WITHDRAWALS. A participant may not request or receive any loans or withdrawals from his or her Plan Account. The credits in a participant's Plan Account will be paid out only as described in Sections 16, 17 and 18.
Sec. 15 BENEFIT ON TERMINATION OF EMPLOYMENT. Upon Termination of Employment, a participant shall be entitled to a benefit equal to the amount of all credits to the participant's Investment Funds in his or her Plan Account, other than the Wells Fargo & Company Stock Investment Fund, plus the number of shares of Company common stock credited to the participant's Wells Fargo & Company Stock Investment Fund, in both cases calculated as of the end of the calendar year immediately prior to the date benefits are distributed pursuant to Sections 16 or 17, multiplied by the vested percentage determined under Section 9.2 of the 401(k) Plan that would be applicable to the participant disregarding, however, Section 9.2(a)(3) of the 401(k) Plan. Any portion of the participant's Plan Account that is not vested shall be forfeited.
Sec. 16 FORM AND TIME OF PAYMENT OF BENEFITS UPON TERMINATION OF EMPLOYMENT. When an employee is first eligible to become a participant in the Plan, the employee shall complete a written election to receive his or her vested Plan Account upon his or her subsequent Termination of Employment in either a single lump sum or in a series of annual installments not to exceed ten annual installments. The participant may change the form of payment (lump sum or installment) prior to the participant's Termination of Employment by filing a written election with the Plan Administrator at least 12 months prior to the date of the participant's Termination of Employment. If the employee does not complete a written election as to the form of payment at the time the employee first becomes eligible for the Plan or if any written election as to the form of payment is not received by the Plan Administrator at least 12 months prior to the date of the participant's Termination of Employment, the participant's vested Plan Account shall be paid to the participant in a single lump sum payment.
Payment of the participant's vested Plan Account in a lump sum or in installments will commence as soon as administratively feasible after the end of the calendar year in which the participant's Termination of Employment occurs. Payment of all vested credits to a participant's Plan Account (determined as provided in Section 15), except credits in shares of Company common stock, shall be paid to the participant by his or her employer in cash, net of any required withholding taxes. All vested shares of Company common stock credited to a participant's Plan Account (determined as provided in Section 15) will be paid to the participant in the form of whole shares of common stock, rounded up to the nearest whole share, net of any required withholding taxes. If the participant is to receive payment in installments, the amount of each installment will be equal to the total amount of the participant's vested Plan Account divided by the number of installments remaining to be made, including the current installment, rounded up to the nearest whole share and the whole number of shares so distributed shall be deducted from the total amount the participant's vested Plan Account. The final installment will be rounded up to the nearest whole share.
Sec. 17 DEATH BENEFITS. If a participant dies while employed, or dies after Termination of Employment but before receiving his or her benefit under this Plan, all vested credits to a participant's Plan Account (determined as provided in Section 15), except credits in shares of Company common stock, shall be paid in a lump sum cash payment, net of any required withholding taxes, and any vested shares of Company common stock credited to such Plan Account (determined as provided in Section 15) shall be paid in the form of whole shares of Company common stock, rounded up to the nearest whole share, net of any required withholding taxes, as soon as administratively feasible after the end of the calendar year in which the participant dies. Such payments shall be made to the participant's Beneficiary determined under the 401(k) Plan.
Sec. 18 BENEFITS UPON THE OCCURRENCE OF CERTAIN BUSINESS TRANSACTIONS. If the Company shall merge or consolidate with another corporation and the Company is not the surviving corporation (a "Transaction"), and the consideration received by the holders of common stock of the Company in the Transaction consists only of common stock of another publicly owned corporation whose outstanding stock is listed on the New York Stock Exchange
or quoted in the NASDAQ National Market System ("Publicly-Traded Stock"), each share of Company common stock credited to a participant's Plan Account shall be converted to a credit for the number of shares of Publicly-Traded Stock which the holder of a share of Company common stock is entitled to receive in such Transaction and, beginning on and after the effective date of the Transaction, any future credits to Plan Accounts or payment of vested benefits payable in the form of shares of common stock shall be made in the form of shares of such Publicly-Traded Stock.
If the consideration received by the holders of common stock of the Company in a Transaction consists of any consideration other than Publicly-Traded Stock, each share of Company common stock credited to a participant's Plan Account shall be restated as credits for cash in an amount equal to the number of shares of Company common stock credited to a participant's Plan Account immediately prior to the effective date of the Transaction multiplied by the average of the high and low prices of a share of Company common stock on the New York Stock Exchange for each of the five trading days preceding the effective date of the Transaction. Such cash shall automatically be deemed to be invested in one or more investment accounts that conform to the investment fund options then provided by the 401(k) Plan, upon such terms and conditions as may be established by the Human Resources Committee of the Board of Directors.
Sec. 19 NONASSIGNABILITY. A participant's Plan Account and the shares of Company common stock credited to a participant's Plan Account are not assignable or transferable by a participant or Beneficiary nor shall any participant or Beneficiary have the power to anticipate, alienate, dispose of, pledge or encumber his or her Plan Account while the Plan Account is in the possession and control of the Company. The Company shall not recognize any attachment, garnishment, execution of judgment or other legal process while the participant's Plan Account is in the possession and control of the Company. The designation of a Beneficiary by a participant does not constitute a transfer.
Sec. 20 UNSECURED OBLIGATION. The obligations of the Company to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of the Company to make such payments. The participant shall have no lien, prior claim or other security interest in any property of the Company. The Company is not required to establish or maintain any fund, trust or account (other than a bookkeeping account or reserve) for the purpose of funding or paying the benefits promised under this Plan. If such a fund is established, the property therein shall remain the sole and exclusive property of the Company. The Company will pay the cost of this Plan out of its general assets. All references to Account, Accounts, gains, losses, income, expenses, payments and the like are included merely for the purpose of measuring the Company's obligation to participants in this Plan and shall not be construed to impose on the Company the obligation to create any separate fund for purposes of this Plan.
Sec. 21 TRUST FUND. If the Company chooses to fund credits to participants' Plan Accounts, all cash contributed for such funding shall be held and administered in trust in
accordance with the terms and provisions of a trust agreement between the Company and the appointed trustee or any duly appointed successor trustee. All Company common stock or other funds in the trust shall be held on a commingled basis and shall be subject to the claims of general creditors of the Company. Plan Accounts shall be for bookkeeping purposes only, and the establishment of Plan Accounts shall not require segregation of trust assets.
Sec. 22 NO GUARANTEE OF EMPLOYMENT. Participation in this Plan does not constitute a guarantee or contract of employment with any Participating Employer. Such participation shall in no way interfere with any rights of a Participating Employer to determine the duration of a participant's employment or the terms and conditions of such employment.
Sec. 23 WITHHOLDING OF TAXES. The benefits payable under this Plan shall be subject to the deduction of the amount of any federal, state or local income taxes, Social Security tax, Medicare tax or other taxes required to be withheld from such payments by applicable laws and regulations.
Sec. 24 ADMINISTRATION. For purposes of Section 3(16)(A) of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, the Plan Administrator shall be the Company's Executive Vice President Human Resources. The Plan Administrator or its delegatee shall have the exclusive authority and responsibility for all matters in connection with the operation and administration of the Plan. The Plan Administrator powers and duties shall include, but shall not be limited to, the following: (a) responsibility for the compilation and maintenance of all records necessary in connection with the Plan; (b) authorizing the payment of all benefits and expenses of the Plan as they become payable under the Plan; (c) authority to engage such legal, accounting and other professional services as it may deem necessary; (d) discretionary authority to interpret the terms of the Plan; (e) authority to adopt procedures for implementing the Plan; and (f) discretionary authority to determine participants' eligibility for benefits under the Plan; and to resolve all issues of fact and law in connection with such determinations.
Sec. 25 CLAIMS PROCEDURE. The Company shall establish a claims procedure consistent with the requirements of ERISA. Such claims procedure shall provide adequate notice in writing to any participant or Beneficiary whose claim for benefits under the Plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the claimant and shall afford a reasonable opportunity to a claimant whose claim for benefits has been denied for a full and fair review by the Company of the decision denying the claim.
Sec. 26 CONSTRUCTION AND APPLICABLE LAW. This Plan is intended to be construed and administered as an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as provided in sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Plan shall be construed and administered according to the laws of the State of Minnesota to the extent that such laws are not preempted by ERISA.
Sec. 26 AGENT FOR LEGAL PROCESS. The Company shall be the agent for service of legal process with respect to any matter concerning the Plan, unless and until the Company designates some other person as such agent.
Sec. 27 AMENDMENT AND TERMINATION. The Board of Directors of the Company or the Human Resources Committee of the Company's Board of Directors may at any time terminate, suspend or amend this Plan in any manner. No such action shall deprive any participant of any benefits to which he or she would have been entitled under the Plan if the participant's Termination of Employment had occurred on the day prior to the date such action was taken, unless agreed to by the participant.
Sec. 28 EFFECTIVE DATE OF THE PLAN. The effective date of this restated Plan is July 1, 1999.
EXHIBIT 10(b)
WELLS FARGO & COMPANY
SUPPLEMENTAL CASH BALANCE PLAN
(As Amended and Restated Effective July 1, 1999)
Sec. 1 NAME AND PURPOSE. The name of the Plan is the "Wells Fargo & Company Supplemental Cash Balance Plan" (the "Plan"). The Plan amends and restates the Norwest Corporation Supplemental Pension Plan. The Plan, as amended and restated, shall be effective July 1, 1999. The Plan is maintained by Wells Fargo & Company (the "Company") for the purpose of providing unfunded pension benefits for certain select management employees, including pension benefits in excess of certain limits imposed by the Internal Revenue Code. Said benefits are intended to supplement the pension benefits payable to such employees under the Wells Fargo & Company Cash Balance Plan (hereinafter referred to as the "Pension Plan") formerly known as the Norwest Corporation Pension Plan.
Sec. 2 DEFINITIONS. All references herein to the "Pension Plan" are references to the Wells Fargo & Company Cash Balance Plan (formerly known as the Norwest Corporation Pension Plan) as it may be amended from time to time. In addition, except where specifically defined in this Plan, all capitalized terms herein shall have the same meaning as given to those terms in the Pension Plan.
Sec. 3 NONQUALIFIED CERTIFIED COMPENSATION. Nonqualified Certified Compensation for purposes of the compensation credits to accounts under Section 8 of this Plan and the special transitional benefit comparison under Section 10 of this Plan means a participant's base pay and all approved commissions, bonuses and incentive payments paid to the participant by the Company or a Participating Employer during a particular pay period subject to the following:
(a) Nonqualified Certified Compensation shall include any Salary
Deferral Contributions on behalf of a participant under the
401(k) Plan, and any salary reduction contributions to any
cafeteria plan under Code section 125 maintained by a
Participating Employer. Contingent upon approval of a similar
provision in the Pension Plan by the Internal Revenue Service,
Nonqualified Certified Compensation includes salary continuation
pay paid in regular monthly or more frequent installments to a
participant placed on a leave that is classified by his or her
Participating Employer as a salary continuation leave of absence,
but does not include any lump sum severance payment.
(b) Nonqualified Certified Compensation shall include payments under the Executive Incentive Compensation Plan approved by the Human
Resources Committee of the Board of Directors of the Company and payments under any other commission, bonus or incentive compensation programs or plans which the Company designates as included in Nonqualified Certified Compensation by written action of the Chairman, President or the Executive Vice President of Human Resources. Notwithstanding the previous sentence, payments under any such commission, bonus or incentive compensation plan shall not be included in Nonqualified Certified Compensation to the extent those payments exceed any limit the Company establishes in such written action.
(c) Subject to subsection (b) above, Nonqualified Certified Compensation shall include deferrals of base pay, approved commissions, bonuses and incentive payments for a participant who has entered into a written agreement with the Company or any other Participating Employer under which payment of such compensation will be deferred to a stated year subsequent to the year in which it would otherwise have been paid to the participant.
(d) Nonqualified Certified Compensation for a participant who has entered into a written agreement with the Company or any other Participating Employer to defer compensation that would have been Certified Compensation under the Pension Plan if it had not been deferred shall include all such deferred compensation.
(e) Notwithstanding the foregoing provisions of this section, solely
for purposes of allocating compensation credits under Section 8
and determining the special transitional benefit comparison under
Section 10, any Nonqualified Certified Compensation paid to a
participant while the participant is employed in a position
subject to this subsection (e) shall be disregarded to the extent
such Nonqualified Certified Compensation exceed $20,000 for a
Plan Year.
(i) This subsection (e) applies to any participant who is employed in the Mortgage Sales Representative job category or in any other job category which the Company classifies as equivalent to the Mortgage Sales Representative category.
(ii) If a participant is transferred into a position that is subject to this subsection (e) during a Plan Year, the $20,000 limit under this subsection for that Plan Year shall be reduced (but not below $0) by the amount of Nonqualified Certified Compensation credited to the participant for service during that Plan Year prior to the date the transfer occurred.
Sec. 4 COMPANY AND PARTICIPATING EMPLOYERS. The "Company" is Wells Fargo & Company (formerly known as Norwest Corporation), a Delaware
corporation, and any successor to said corporation. Each Participating
Employer in the Pension Plan shall also be a "Participating Employer" in this
Plan if any of its employees become participants in this Plan pursuant to
Section 5 of this Plan.
Sec. 5 PARTICIPATION. Participation in this Plan is limited to the following employees of the Company or any other Participating Employer:
(a) Employees who enter into a written agreement with the Company or any other Participating Employer under which payment of compensation earned by the employee will be deferred to a stated year subsequent to the year in which it would otherwise have been paid, provided such compensation would otherwise have been recognized as "Certified Compensation" or "Monthly Earnings" as defined in the Pension Plan. The compensation of a participant that is so deferred is referred to in this Plan as the participant's "Deferred Compensation."
(b) Employees whose benefits under the Pension Plan are reduced as a result of the limits imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code and Treasury Regulation Section 1.401(a)(4)-5(b). However, an employee will not be eligible under the previous sentence unless the employee would have reached one or more of those limits based on his or her Nonqualified Certified Compensation.
Sec. 6 ESTABLISHMENT OF PLAN ACCOUNT. A bookkeeping account shall be established under this Plan for each participant. The participant's account in this Plan shall be adjusted as follows:
(a) If applicable, an initial account balance shall be credited to the participant pursuant to Section 7 of this Plan.
(b) The participant's account will be increased by compensation credits determined pursuant to Section 8 of this Plan.
(c) The participant's account will be adjusted for investment credits determined pursuant to Section 9 of this Plan.
(d) The participant's account will be canceled upon commencement of pension payments to the participant or upon the occurrence of a forfeiture.
Sec. 7 INITIAL ACCOUNT BALANCE. The participant's initial account balance will be determined as follows:
(a) If the participant was an Active Participant in the Pension Plan on
June 30, 1999 and continues to be an Active Participant in the Pension
Plan on July 1, 1999, his or her account under this Plan will be
credited with an initial account balance as of July 1, 1999 equal to
the Actuarial Equivalent present value as of July 1, 1999 of the
pension benefit that the participant would have been entitled to under
this Plan commencing on the first day of the month following the
participant's Social Security Retirement Date (or on July 1, 1999, if
later) as a Life-Only Annuity, determined (i) by assuming that the
participant's Termination of Employment had occurred on June 30, 1999,
and that the participant satisfied any vesting requirements on that
date, (ii) by using the participant's Nonqualified Certified
Compensation and any Deferred Compensation not already included in
Nonqualified Certified Compensation to determine the participant's
Final Average Earnings as of December 31, 1998; provided, however,
that Final Average Earnings can not be less than the Final Average
Earnings calculated in the Pension Plan as if the participant had not
deferred compensation, (iii) by using the Integration Level (as
defined in Section 4.1(c)(1) of the Pension Plan in effect on June 30,
1999) in effect for 1998, and (iv) by disregarding Section 4.1(d) and
Section 4.6 of the Pension Plan in effect on June 30, 1999.
(b) If a participant in the Plan on July 1, 1999 was a participant with an accrued but unpaid benefit in the frozen First Interstate Bancorp Supplemental Retirement and Savings Program (Excess Benefit Retirement Plan) on June 30, 1999, his or her account under this Plan will be credited with an initial account balance as of July 1, 1999 equal to the amount indicated on Schedule I to this Plan.
(c) If a participant for whom an initial account balance was not established pursuant to subsection (a) of this Section 7 as of July 1, 1999, becomes a Qualified Employee in the Pension Plan after that date and remains entitled to a benefit that accrued with respect to service prior to July 1, 1999 under this Plan but has not yet received or begun receiving payments of the benefit, his or her account will be credited with an initial account balance as of the first day of the second quarter following the quarter in which the participant again became a Qualified Employee, provided the participant remains so employed on the date. The initial account balance will be equal to the Actuarial Equivalent present value, determined as of the date the credit occurs, of the benefit to which the participant is entitled with respect to service prior to July 1, 1999, expressed as a Life-Only Annuity commencing on the first day of the month following the participant's Social Security Retirement Date (or the date of the credit if later).
Sec. 8 NONQUALIFIED COMPENSATION CREDIT. The Plan account of each eligible participant who is an Active Participant in the Pension Plan during all or part of a Plan Year will be credited with a nonqualified compensation credit for the Plan Year, determined as follows:
(a) The nonqualified compensation credit for an eligible participant for a Plan Year will be equal to the participant's Nonqualified Certified Compensation determined under Section 3 of this Plan multiplied by the percent determined from the following table less the amount of any Compensation Credits allocated to the participant's Account in the Pension Plan for that Plan Year:
Points Compensation Credit % ------ --------------------- 39 or less 4% 40 to 54 5% 55 to 69 6% 70 to 79 7% 80 or more 8% |
(b) For purposes of this Section 8, an eligible participant's points for a particular Plan Year are equal to the sum of the participant's completed years of age, plus the participant's complete years of Credited Service determined as of the last day of the Plan Year. If the participant incurs a Termination of Employment prior to the last day of the Plan Year, the participant's points will be determined as of the date of the participant's Termination of Employment. In applying the formula, the participant's age will be determined as of the participant's most recent birthday and the participant's Credited Service will be rounded down to completed years by disregarding any fraction of a year.
(c) The percentages in subsection (a) above will be adjusted pursuant to the table contained in Section 5.3(d) of the Pension Plan for each eligible participant who (i) was an active participant in this Plan both on July 1, 1999 and at any time during the Plan Year for which the compensation credit is allocated, (ii) was born before January 2, 1940, and (iii) on January 1, 1985 was a participant in the Wells Fargo & Company Retirement Plan (a defined benefit pension plan that terminated effective December 31, 1984).
(d) The nonqualified compensation credit for a Plan Year will be allocated to the eligible participant's account as of the end of the Plan Year except that, if the eligible participant terminates employment during the Plan Year and commences payment under
this Plan during the Plan Year, the nonqualified compensation credit for the Plan Year will be allocated to the participant's account as of the participant's Termination of Employment.
(e) No nonqualified compensation credit will be made for a participant for a Plan Year unless the participant was an Active Participant in the Pension Plan at some time during that Plan Year and satisfied the eligibility requirements under Section 5 of this Plan for that Plan Year. Any compensation that is paid following the calendar quarter in which the participant's Termination of Employment occurred will be disregarded for purposes of this Section 8.
Sec. 9 INVESTMENT CREDITS. Each account will be adjusted to reflect investment credits determined as follows:
(a) For each calendar quarter beginning July 1, 1999 and ending prior to the date the Company amends this Plan to provide for participant investment direction, the investment credit will be determined by multiplying the participant's account balance as of the first day of the quarter by 25% of the average of the annual yields on 30 year constant maturity Treasury securities for the three months preceding the first day of the quarter, as specified for each such month by the Commissioner of the Internal Revenue Service for purposes of Code section 417(e) and published in the following month, expressed as a decimal equivalent rounded to four decimal places. The investment credit under this subsection for a calendar quarter will be credited to the participant's account as of the last day of the Plan Year; provided, however, that if distribution of the participant's benefit in this Plan is to commence during the Plan Year, the participant's account will be credited with a partial investment credit calculated based on the number of quarters within the Plan Year completed prior to the distribution date.
(b) Commencing July 1, 1999, a special transitional investment credit will also be allocated to the accounts of eligible participants. This special investment credit for a particular calendar quarter will be determined by multiplying the account balance as of the beginning of the quarter by .0075 (three-quarters of one percent). This special transitional investment credit for a calendar quarter will be credited to the participant's account as of the last day of the Plan Year; provided, however, that if distribution of the participant's benefit in this Plan is to commence during the Plan Year, the participant's account will be credited with a partial special transitional investment credit based on the number of quarters within the Plan Year completed prior to the distribution date. The
last special transitional investment credit under this subsection will be allocated for the quarter ending prior to the earlier of (i) the implementation of investment direction by the participants, or (ii) January 1, 2001.
(c) Compensation credits allocated to a participant's account for a particular Plan Year shall be credited as of the last day of that Plan Year with an investment credit equal to one-half of the average of the quarterly yields on 30 year constant maturity Treasury securities for that Plan Year determined under subsection (a) of this Section 9 and one-half of the special transitional investment credit for that Plan Year determined under subsection (b) of this Section 9.
Sec. 10 SPECIAL TRANSITIONAL BENEFIT COMPARISON FOR EMPLOYEES OF FORMER NORWEST. If a participant in this Plan (i) was an Active Participant in the Pension Plan and this Plan on June 30, 1999, (ii) had attained age 45 on or before June 30, 1999, (iii) was credited with at least five years of Credited Service on June 30, 1999 under the Pension Plan, and (iv) was an Active Participant in the Pension Plan and this Plan on July 1, 1999, the participant shall be eligible for a special transitional benefit comparison under this Plan as provided below.
(a) The special transitional benefit comparison will provide a benefit under this Plan equal to the greater of:
(i) The Actuarial Equivalent of the participant's benefit determined
under Article VII of the Pension Plan except that Monthly
Earnings for purposes of determining Final Average Earnings under
Section 7.3 of the Pension Plan will be calculated using
Nonqualified Certified Compensation; provided, however that Final
Average Earnings can not be less than the Final Average Earnings
calculated in the Pension Plan as if the participant had not
deferred compensation; or
(ii) The participant's account value under this Plan plus the participant's Account value under the Pension Plan.
(b) The participant's benefit determined under subsection (a) above will be reduced by the amount of benefits payable to the participant under the Pension Plan.
Sec. 11 SPECIAL TRANSITIONAL BENEFIT COMPARISON FOR CERTAIN FORMER FIRST INTERSTATE EMPLOYEES. If a participant in this Plan on July 1, 1999 was (i) a participant with an accrued but unpaid benefit in the frozen First Interstate Bancorp Supplemental Retirement and Savings Program (Excess Benefit Retirement Plan) on June 30, 1999, and (ii) was an Active Participant in the Pension Plan on July 1, 1999, the
participant shall be eligible for a special transitional benefit comparison under this Plan as provided below.
(a) The participant's account balance at the time the distribution to the
participant will occur or commence shall be increased by an amount
(not less than $0) equal to the amount determined in subsection (i)
below minus the amount determined in subsection (ii) below:
(i) The Actuarial Equivalent present value of the Monthly Pension upon early retirement to which the participant is entitled under the provisions of the First Interstate Bancorp Supplemental Retirement and Savings Program (Excess Benefit Retirement Plan) and the Retirement Plan for Employees of First Interstate Bancorp and Its Affiliates in effect on June 30, 1999, expressed as a Life Only Annuity commencing on the date as of which distribution of the participant's accrued benefit is to occur or commence.
(ii) The participant's initial account balance under this Plan plus the participant's initial Account Balance under the Pension Plan adjusted for investment credits attributable to those initial account balances, and disregarding any compensation credits subsequently allocated to the participant's account in this Plan and the participant's Account in the Pension Plan and any investment credits attributable to such compensation credits.
(b) The participant's benefit determined under subsection (a) above will be reduced by the amount of benefits payable to the participant under the Pension Plan.
Sec. 12 OPTIONAL SETTLEMENTS, ETC. The supplemental benefit payable under this Plan with respect to a participant shall be subject to all terms and conditions of the Pension Plan governing the calculation and payment of the corresponding benefit under the Pension Plan to which the participant may be entitled, including the payment of any optional settlement permitted under the Pension Plan and the calculation of the participant's vested percentage. Notwithstanding the foregoing, if the present value (determined as provided under the Pension Plan) of the benefit to be provided under this Plan is $5,000 or less upon the participant's Termination of Employment or death, the entire benefit under this Plan shall be paid in a lump sum within a reasonable time following the participant's Termination of Employment or death.
Sec. 13 DEATH BENEFITS. In the event benefits are payable under the Pension Plan to the participant's surviving spouse and/or beneficiary or joint annuitant
following the participant's death, a supplemental benefit shall be payable under this Plan in the same form to the same recipient.
Sec. 14 UNSECURED OBLIGATIONS. The obligations of the Company to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of the Company to make such payments. The participant shall have no lien, prior claim or other security interest in any property of the Company. The Company is not required to establish or maintain any fund, trust or account (other than a bookkeeping account or reserve) for the purpose of funding or paying the benefits promised under this Plan. If such a fund is established, the property therein shall remain the sole and exclusive property of the Company. The Company will pay the cost of this Plan out of its general assets. All references to account, gains, losses, income, expenses, payments and the like are included merely for the purpose of measuring the Company's obligation to participants in this Plan and shall not be construed to impose on the Company the obligation to create any separate fund for purposes of this Plan.
Sec. 15 NONASSIGNABILITY. No participant or Beneficiary shall have the power to assign, alienate, dispose of, pledge or encumber benefits payable under this Plan, whether voluntarily or involuntarily, or directly or indirectly. Any attempt to do so by the participant, a spouse, Beneficiary or joint annuitant, a court, or any other person or entity shall result in forfeiture of the benefits otherwise payable under this Plan with respect to said participant. The Company shall not recognize any attachment, garnishment, execution of judgment or other legal process affecting the participant's benefits under this Plan. The designation of a Beneficiary by a participant does not constitute a transfer.
Sec. 16 NO GUARANTEE OF EMPLOYMENT. Participation in this Plan does not constitute a guarantee or contract of employment with any Participating Employer. Such participation shall in no way interfere with any rights of a Participating Employer to determine the duration of an individual's employment or the terms and conditions of such employment.
Sec. 17 WITHHOLDING OF TAXES. The benefit payable under the Plan to any participant, spouse, Beneficiary or joint annuitant shall be subject to the deduction of any federal, state or local income taxes, Social Security (FICA) taxes or other taxes which are required to be withheld from such payments by applicable laws or regulations.
Sec. 18 ADMINISTRATION. For purposes of Section 3(16)(A) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, the
Plan Administrator shall be the Company's Executive Vice President Human
Resources. The Plan Administrator or its delegatee shall have the exclusive
authority and responsibility for all matters in connection with the operation
and administration of the Plan. The Plan Administrator powers and duties
shall include, but shall not be limited to, the following: (a)
responsibility for the compilation and maintenance of all records necessary
in connection with the Plan; (b) authorizing the payment of all benefits and
expenses of the Plan as they become payable under the Plan; (c) authority to
engage such legal, accounting and other professional services as it may deem
necessary; (d) discretionary authority to interpret the terms of the Plan;
(e) authority to adopt procedures for implementing the Plan; and (f)
discretionary authority to determine
participants' eligibility for benefits under the Plan; and to resolve all issues of fact and law in connection with such determinations
Sec. 19 CLAIMS PROCEDURE. The Company shall establish a claims procedure consistent with the requirements of ERISA. Such claims procedure shall provide adequate notice in writing to any participant or Beneficiary whose claim for benefits under the Plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the claimant and shall afford a reasonable opportunity to a claimant whose claim for benefits has been denied for a full an fair review by the Company of the decision denying the claim.
Sec. 20 CONSTRUCTION AND APPLICABLE LAW. This Plan is intended to be construed and administered as a unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as provided in sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Plan shall be construed and administered according to the laws of State of Minnesota to the extent that such laws are not preempted by ERISA.
Sec. 21 AGENT FOR LEGAL PROCESS. The Company shall be the agent for service of legal process with respect to any matter concerning the Plan, unless and until the Company designates some other person as such agent.
Sec. 22 AMENDMENT AND TERMINATION. The Board of Directors of the Company or the Human Resources Committee of the Company's Board of Directors may at any time terminate, suspend or amend this Plan in any manner.
Sec. 23 EFFECTIVE DATE OF THE PLAN. The effective date of this restated Plan is July 1, 1999.
EXHIBIT 10(c)
NORWEST CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(As amended and restated effective September 28, 1999)
1. PURPOSE
The purpose of the Norwest Corporation Deferred Compensation Plan for Non-Employee Directors (the "Plan") is to provide an opportunity for non-employee members of the Board of Directors of the former Norwest Corporation, now known as "Wells Fargo & Company" (the "Corporation"), to defer cash compensation which they received for personal services rendered in their capacity as directors of the Corporation and to receive a return on such amounts, at their election, based on either the interest equivalent on three-month U. S. Treasury Bills or an investment in the common stock of the Corporation with all dividends reinvested . The Plan is intended to maximize the effectiveness and flexibility of these directors' compensation arrangements, and to aid in attracting and retaining individuals of outstanding abilities and skills for service on the Corporation's Board of Directors (the "Board").
2. EFFECTIVE DATE
The effective date of the Plan is September 1, 1987, and the effective date after which a director may have deferred compensation credited to his or her Phantom Stock Account or Deferred Cash Account, as defined below, is November 24, 1987. No compensation earned after December 31, 1998, may be deferred pursuant to the Plan.
3. ADMINISTRATION
As used herein, the term "Administrator" shall refer to the Corporation's Senior Vice President - Compensation and Benefits prior to September 28, 1999, and the Corporation's Director of Human Resources on and after such date. The Administrator shall have the authority to adopt rules for carrying out the Plan and to interpret and implement the provisions of the Plan. The determinations of the Administrator shall be conclusive and binding on all participants.
4. ELIGIBILITY
Any person who was a member of the Board but was not an officer or employee of the Corporation or of a subsidiary of the Corporation ("Non-Employee Director") during the period compensation could have been deferred in accordance with paragraph 2 hereof was eligible to participate in the Plan. Any Non-Employee Director who elected to defer such compensation in accordance with paragraph 5 hereof is a Plan participant, and his or her status as a participant shall continue until the date of the last payment to him or her pursuant to paragraph 7 hereof.
5. ELECTION TO DEFER
(a) IN GENERAL - Each participant has made one or more elections, in accordance with the terms of this paragraph 5, to defer receipt of all or a part of the cash compensation (annual retainers and meeting attendance fees) otherwise payable to him or her during the period covered by paragraph 2 hereof with respect to all or a portion of a calendar year during which he or she served on the Board and committees thereof and to have such deferred amounts credited either to such Non-Employee Director's Deferred Cash Account (the "Deferred Cash Account") or Phantom Stock Account (the "Phantom Stock Account").
(b) EFFECTIVE DATE OF ELECTION - The initial election to defer related to compensation earned commencing as of the beginning of the first calendar month following the initial election and ending on the last day of the calendar year of the initial election. Subsequent elections to defer related to compensation earned during any subsequent calendar year, and were not effective unless made and received in writing by the Administrator prior to January 1 of such calendar year. A participant's election to defer is irrevocable, except as provided hereinafter in paragraph 5(d). The initial election remained in effect unless and until a participant filed a subsequent election form with the Administrator prior to January 1 of the year such subsequent election was to be effective. A properly and timely filed election form took effect January 1 of the year following the year of its delivery to the Administrator.
(c) MANNER OF ELECTION - The Administrator provided all individuals entitled to make the election to defer with an election form prior to the time by which an election to defer was required to have been made. This election form included the following items, which were required to have been completed in full in order for the election to be effective.
(1) The deferred amount, expressed as a percentage of the total compensation to be earned during the calendar year to which the election related;
(2) The percentage of the deferred amount to be credited to the Deferred Cash Account or the Phantom Stock Account; and
(3) The year in which distribution was to commence and form of distribution, which shall be either a lump sum or up to 10 annual installments.
Every participant who may have elected the payment of any deferred compensation to be made to him or her or a beneficiary on February 28 in any year beginning with 2000 shall be deemed to have elected such payment to be made on the March 1 immediately following such February 28.
(d) ONE-TIME RETIREMENT ELECTION - In the case of each participant who has
elected to receive payments of deferred compensation from a Phantom
Stock Account in installments and which installments have not
commenced as of September 28, 1999, such participant may, at any one
time commencing January 1 of the final year of his or her service as a
Non-Employee Director and continuing until December 31 of the year
preceding the date of the payment of the first installment of deferred
compensation to him or her, irrevocably elect to instruct the
Administrator to deduct any amount or the entire amount then credited
to such participant's Phantom Stock Account and to credit the same
amount to such participant's Deferred Cash Account. If such election
is timely received, it shall take effect on the later of March 1
immediately following the date of receipt of the election or the
earliest date permitted without penalty to the participant pursuant to
Section 16 of the Securities Exchange Act of 1934. For this purpose,
a phantom stock unit shall be valued at the closing price per share of
the Corporation's common stock as reported on the consolidated tape of
the New York Stock Exchange for the trading day next preceding such
effective date.
(e) DESIGNATION OF BENEFICIARY - A participant may from time to time designate a beneficiary or beneficiaries and/or revoke his or her beneficiary designation and file a new beneficiary designation with the Administrator. The most recent such designation shall apply to all of the participant's account balances under the Plan.
6. DEFERRED COMPENSATION ACCOUNTS
(a) IN GENERAL - There has been established for each participant a Deferred Cash Account and a Phantom Stock Account for the purpose of recording amounts deferred for such participant under the Plan. A participant who elected to defer compensation for credit to the Deferred Cash Account received a credit to his or her Deferred Cash Account as of the first day of each calendar quarter of the amount of such compensation for the immediately preceding quarter that would have been payable to the participant in the absence of an election to defer. A participant who elected to defer compensation for credit to the Phantom Stock Account received a credit to his or her Phantom Stock Account in the number of whole and fractional phantom stock units equal to the whole and fractional shares of the Corporation's common stock (rounded to the nearest one-hundredth share) which the amount of compensation deferred for the immediately preceding quarter could have purchased at the average of the highest and lowest prices as reported on the consolidated tape of the New York Stock Exchange as of the first day of each calendar quarter (or, if the New York Stock Exchange was closed on said date, the next preceding date on which it was open).
(b) UNSECURED OBLIGATIONS - All amounts deferred pursuant to the Plan and credited to a deferred compensation account shall be unsecured obligations of the Corporation and each participant's right thereto shall be as an unsecured general creditor of the Corporation.
(c) INTEREST AND DIVIDEND CREDIT - All deferred compensation in a participant's Deferred Cash Account shall bear interest from the date credited to the participant's Deferred Cash Account until paid in accordance with paragraph 7 hereof during each month at a rate per annum equal to the interest equivalent of the secondary market yield for three-month United States Treasury Bills as reported for the preceding month in FEDERAL RESERVE STATISTICAL RELEASE H.15(519) (the "Release"), which shall be credited to each participant's Deferred Cash Account as of the last day of each month. If the Release ceases to be available, the Administrator shall determine the interest rate payable with respect to Deferred Cash Accounts and shall promptly inform the participants in writing of such determination. Each time a dividend is paid with respect to the Corporation's common stock, each whole and fractional phantom stock unit then credited as of the dividend record date to a participant's Phantom Stock Account shall be deemed to have received a phantom dividend at the same per share rate, and such participant's Phantom Stock Account shall be credited with whole and fractional phantom stock units (rounded to the nearest one-hundredth unit). The additional stock units to be credited to a participant's Phantom Stock Account are equal to the number of whole and fractional shares of the Corporation's common stock that could have been purchased with the phantom dividend, if paid prior to December 1, 1999, at the average of the highest and lowest prices as reported on the consolidated tape of the New York Stock Exchange on the date a dividend on the Corporation's common stock is paid (or the next preceding day on which the New York Stock Exchange was open, if it was closed on a dividend payment date) and, if paid on or after December 1, 1999, at the closing price as reported on the consolidated tape of the New York Stock Exchange for the trading day next preceding the dividend payment date.
7. PAYMENT OF DEFERRED COMPENSATION
(a) IN GENERAL - No withdrawal or payment shall be made from the participant's deferred compensation accounts, except as provided in this paragraph 7. Payments of deferred compensation made in 1999 and prior years were made on February 28, and payments of deferred compensation to be made in 2000 and subsequent years shall be made on March 1 or as soon thereafter as administratively practicable.
(b) DATE OF FIRST PAYMENT AND PAYMENT FROM DEFERRED CASH ACCOUNT -The value of a participant's Deferred Cash Account shall be payable in cash in a lump sum or up to 10 annual installments commencing on the date elected, or deemed elected, by a participant (or the next succeeding business day if such date is not a business day) of the first full calendar year following termination of such participant's service as a Non-Employee Director, or in any other year which begins at least 12 months following the year in which the deferred compensation otherwise would have been paid. The amount of each installment payment from the Deferred Cash Account shall be a fraction of the value of the participant's Deferred Cash Account on the business day preceding each installment payment date, the numerator of which is one and the denominator of
which is the total number of installments elected minus the number of installments previously paid.
(c) DATE OF FIRST PAYMENT AND PAYMENT FROM PHANTOM STOCK ACCOUNT - In the case of payments of deferred compensation made from Phantom Stock Accounts on or prior to February 28, 1999, an amount in cash equal to the value of the number of shares of common stock of the Corporation credited to the participant's Phantom Stock Account determined at the average of the highest and lowest prices reported on the consolidated tape of the New York Stock Exchange for the day seven days before the date elected by the participant for distribution (or the next preceding day on which the New York Stock Exchange was open, if it was closed on said day) was payable to the participant in a lump sum or up to 10 annual installments beginning the first full calendar year following termination of a participant's service as a Non-Employee Director, or any other year elected by the participant which began at least 12 months following the year in which the deferred compensation otherwise would have been paid. If a Non-Employee Director elected to commence payments of deferred compensation from a Phantom Stock Account on or prior to February 28, 1999, the entire cash amount credited to his or her Phantom Stock Account on the February 28 of the full calendar year following his or her termination was deemed to have been credited to his or her Deferred Cash Account on said date and said amount, together with interest as described in paragraph 6(c) will be paid as elected by the participant in accordance with paragraph 5 hereof. Commencing March 1, 2000, and on each March 1 thereafter, the amount of each cash payment from a Phantom Stock Account on each payment date elected, or deemed elected, by a participant (or on the next succeeding business day if such March 1 shall not be a business day) shall be based on the value of the Account using the closing price of the common stock of the Corporation as reported on the consolidated tape of the New York Stock Exchange for the trading day next preceding the payment date. The amount of an installment payment made from a Phantom Stock Account shall be a fraction of the value of the Account, valued each year as hereinabove provided, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid.
(d) IN EVENT OF DEATH - If a participant dies before he or she has received all payments to which he or she is entitled under the Plan, payment shall be made in accordance with the participant's designation of a beneficiary on a form provided for that purpose and delivered to and accepted by the Plan Administrator. In the absence of a valid designation, or if the designated beneficiary does not survive the participant, all remaining payments due hereunder shall be made as promptly as administratively practicable to such participant's estate.
(e) CHANGE OF CONTROL - At the time of an election, a participant may also have elected to have all amounts deferred pursuant to this Plan become payable immediately in cash if (i) a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes the beneficial owner, directly or indirectly, of 25% or more of the combined voting power of the Corporation's outstanding voting securities ordinarily having the right to vote for the election of directors of the Corporation or (ii) individuals who constitute the Board of Directors of the Corporation as of November 24, 1987 (the "Incumbent Board") cease for any reason to constitute at least two-thirds thereof, provided that any person becoming a director subsequent to said date whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board shall be, for purposes of this clause (ii), considered as though such person were a member of the Incumbent Board. Any such payment shall be made in cash on the business day immediately preceding the effective date of the transaction constituting the Change of Control. The value of a participant's Phantom Stock Account for purposes of a distribution under this paragraph 7(e) shall be the closing price of the common stock of the Corporation as reported on the consolidated tape of the New York Stock Exchange for the trading day immediately preceding the date of payment pursuant to this paragraph 7(e).
8. ADJUSTMENTS FOR CERTAIN CHANGES IN CAPITALIZATION
If the Corporation shall at any time increase or decrease the number of its outstanding shares of common stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in common stock, or through a stock split, subdivision, consolidation, combination, reclassification, or recapitalization involving the common stock, then the number of phantom stock units credited to the Phantom Stock Accounts of all participants under the Plan shall be increased, decreased or changed in like manner as if such shares had been issued and outstanding, fully paid and nonassessable at the time of such occurrence.
9. AMENDMENT
This Plan may be amended, modified, suspended or terminated by action of the Board or the Board Affairs Committee, or any successor committee, of the Board; provided however, that if at the time of any such proposed amendment, modification, suspension or termination, any member of such committee does not satisfy the requirements applicable to committee approval contained in regulations of the Securities and Exchange Commission promulgated under Section 16 of the Securities Exchange Act of 1934, and applicable interpretations thereof, any such amendment, modification, suspension or termination must be approved by the Board. No amendment, modification, suspension or termination of the Plan will adversely affect any benefits to which a participant would have been entitled under the Plan if termination of the participant's service as a Non-Employee Director had occurred on the day prior to the date such action was taken, unless agreed to by the participant.
10. NON-ASSIGNABILITY
No right to receive payments hereunder shall be assignable or transferable by a participant, except as provided in paragraph 7(d). No right to receive distributions under the Plan will be assignable or transferable by a participant except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, Title I of the Employee Retirement Income Security Act, or rules thereunder. The designation of a beneficiary by a participant as provided in paragraph 5(e) does not constitute an assignment or transfer.
11. NO GUARANTEE OF SERVICE
Participation in the Plan does not constitute a guarantee or contract of service as a Non-Employee Director.
12. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto shall be governed by and construed in accordance with the law of the State of Delaware.
EXHIBIT 10(d)
NORWEST CORPORATION
DIRECTORS' STOCK DEFERRAL PLAN
(As amended and restated effective September 28, 1999)
1. ELIGIBILITY. Each person who was a member of the Board of Directors of Norwest Corporation, now known as "Wells Fargo & Company" (the "Corporation"), but was not an employee or officer of the Corporation or of any subsidiary of the Corporation during the period compensation could have been deferred in accordance with Section 2 was eligible to participate in the Directors' Stock Deferral Plan (the "Plan").
2. DEFERRAL OF COMPENSATION. Subject to the availability of shares of Common Stock under the Plan, an eligible director may have elected to defer, in the form of shares of the common stock of the Corporation (the "Common Stock"), all or a portion of the annual retainer and meeting fees payable in cash by the Corporation for his or her service as a director for each calendar year during the period from 1993 through 1998 (each, a "Deferral Year") following the year in which the deferral election was made. Such election was made pursuant to Section 3.
3. ELECTION TO PARTICIPATE. An eligible director became a participant in the Plan by filing not later than December 15 of the year preceding a Deferral Year an irrevocable election with the Plan Administrator (as defined in Section 18) on a form provided for that purpose. The election to participate was effective with respect to fees payable for the Deferral Year and after the date indicated on the election form. The election form specified an amount to be deferred expressed as a percentage of the fees otherwise payable in cash for the director's service, one of the payment options described in Sections 8 and 9, and the year in which amounts deferred shall be paid in a lump sum pursuant to Section 8 or in which installment payments shall commence pursuant to Section 9. The deferral election was effective only for the Deferral Year specified on the form. A new deferral election form was filed for each Deferral Year. Every participant who may have elected the payment of any deferred compensation to be made to him or her or a beneficiary on February 28 in any year beginning with 2000 shall be deemed to have elected such payment to be made on the March 1 immediately following such February 28.
4. ONE-TIME RETIREMENT ELECTION. Each participant who has elected to receive deferrals in installments which have not commenced as of September 28, 1999, or in a lump-sum payment in a year after 1999 may, at any one time commencing January 1 of the final year of his or her service as a non-employee director and continuing until December 31 of the year preceding the date of the payment to him or her of the first installment or lump-sum payment, as the case may be, irrevocably elect to instruct the Plan Administrator to deduct any amount or the entire amount then credited to such participant's Deferred Stock Account and to credit the same amount to a Deferred Cash Account to be established for such participant and to receive interest in accordance with Section 9.a. If such election is timely received, it shall take effect on the later of March 1 immediately following the date of receipt of the election or the
earliest date permitted without penalty to the participant pursuant to
Section 16 of the Securities Exchange Act of 1934. For this purpose, a
deferred stock unit shall be valued at the closing price per share of the
Corporation's common stock as reported on the consolidated tape of the New
York Stock Exchange for the trading day next preceding such effective date.
5. DESIGNATION OF BENEFICIARY. A participant may from time to time designate a beneficiary or beneficiaries and/or revoke his or her beneficiary designation and file a new beneficiary designation with the Plan Administrator. The most recent such designation shall apply to all of the participant's account balances under the Plan.
6. DEFERRED STOCK ACCOUNT. On the first day of each calendar quarter
during each Deferral Year elected by a participant (the "Credit Date"), the
participant received a credit to his or her stock account under the Plan (the
"Deferred Stock Account"). The amount of the credit was the number of phantom
shares (rounded to the nearest one-hundredth of a share) determined by
dividing the amount of the participant's fees earned during the immediately
preceding quarter and specified for deferral by the average of the high and
low prices per share of Common Stock reported on the consolidated tape of the
New York Stock Exchange on the Credit Date or, if the New York Stock Exchange
was closed on the Credit Date, the next preceding date on which it was open.
Unless a participant elects pursuant to Section 4 to transfer amounts from
his or her Deferred Stock Account to his or her Deferred Cash Account,
amounts credited to a participant's Deferred Stock Account shall remain in
such Deferred Stock Account, receiving dividend credits pursuant to Section
7, until fully paid in accordance with the participant's election pursuant to
Section 3.
7. DIVIDEND CREDIT. Each time a dividend is paid on the Common Stock, a participant shall receive a credit to his or her Deferred Stock Account. In the case of dividends paid prior to December 1, 1999, the amount of the dividend credit was the number of shares (rounded to the nearest one-hundredth of a share) determined by multiplying the dividend amount per share by the number of shares credited to the participant's Deferred Stock Account as of the record date for the dividend and by dividing such product by the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the dividend payment date or, if the New York Stock Exchange was closed on the dividend payment date, the next preceding date on which it was open. In the case of dividends paid on and after December 1, 1999, the product computed in the preceding sentence shall be divided by the closing price per share of Common Stock reported on the consolidated tape of the New York Stock Exchange for the trading day next preceding the dividend payment date.
8. PAYMENT OF DEFERRALS IN A LUMP SUM. Unless a participant elects pursuant to Section 3 to receive payment of deferrals under the Plan in installments as described in Section 9, credits to a participant's Deferred Stock Account are payable in a lump sum in cash, in whole shares of Common Stock (together with cash in lieu of a fractional share), or a combination thereof, in the calendar year following termination of service as a director or such other year as elected by the participant pursuant to Section 3. The foregoing notwithstanding, however, if a participant who has elected to receive deferrals in a lump sum
elects to convert his or her Deferred Stock Account to a Deferred Cash Account pursuant to Section 4, such lump-sum payment shall be made in cash. All lump-sum payments made in 1999 and prior years were made on February 28 (or the next succeeding business day if February 28 was not a business day). All lump-sum payments made in 2000 and subsequent years shall be made on March 1 or as soon thereafter as administratively practicable, taking into account any dividend payable on such day. Amounts paid in cash from Deferred Stock Accounts in 1999 and prior years, including cash in lieu of fractional shares, was determined based on the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the January 31 immediately preceding the date of payment or, if the New York Stock Exchange was closed on that date, the next preceding date on which it was open. Amounts payable in cash from Deferred Stock Accounts in 2000 and any subsequent year, including cash in lieu of fractional shares, shall be determined based on the closing price per share of the Common Stock reported on the consolidated tape of the New York Stock Exchange for the trading day immediately preceding the payment date.
9. PAYMENT OF DEFERRALS IN INSTALLMENTS. A participant may elect pursuant to Section 3 to receive payment of deferrals under the Plan in annual installments commencing in the calendar year following termination of service as a director or such other year as elected by the participant. Installment payments made in 1999 and prior years were made on February 28, and installment payments to be made in 2000 and subsequent years shall be made on March 1 or as soon thereafter as administratively practicable. Installments will be paid in cash unless a participant makes the election described in Section 9.b.
a. CREDITS TO AND PAYMENTS FROM DEFERRED CASH ACCOUNTS; INTEREST. For
all installment payments made in 1999 and prior years, a participant's
Deferred Stock Account was converted to a Deferred Cash Account by
multiplying the number of phantom shares credited as of January 31immediately
prior to the first installment payment by the average of the high and low
prices per share of Common Stock reported on the consolidated tape of the New
York Stock Exchange on such January 31 (or, if the New York Stock Exchange
was closed on such January 31, the next preceding date on which it was open)
and crediting such product to the participant's Deferred Cash Account.
Amounts credited to Deferred Cash Accounts in 2000 and subsequent years shall
be determined in accordance with Section 4. The amount of each installment
payment made from a Deferred Cash Account shall be a fraction of the value of
the participant's Deferred Cash Account determined as of January 31 prior to
the date of the installment payment, for payments made prior to 2000, and as
of the last day of February prior to such payment date, for payments made in
2000 and subsequent years. The numerator of such fraction is one and the
denominator is the total number of installments elected (not to exceed ten)
minus the number of installments previously paid. Beginning on the day
following the establishment of a Deferred Cash Account under this Plan, the
cash balance remaining in such Deferred Cash Account from time to time shall
bear interest at an annual rate equal to the interest equivalent of the
secondary market yield for three-month United States Treasury Bills as
reported for the preceding month in Federal Reserve statistical release H.
15(519). The interest rate shall be adjusted
monthly, and interest shall be credited to such Deferred Cash Account as of the last day of each month.
b. DISTRIBUTION OF DEFERRED STOCK ACCOUNTS IN INSTALLMENTS. For all participants who elect to receive distributions from Deferred Stock Accounts in installments commencing in 2000 or any subsequent year and who have not elected pursuant to Section 4 to convert their Deferred Stock Accounts to Deferred Cash Accounts, the phantom share balances in such accounts shall continue to receive dividend credits in accordance with Section 7 until fully paid out in accordance with participants' elections, or deemed elections, pursuant to Section 3. Participants who elect pursuant to Section 3 to receive distributions from Deferred Stock Accounts in installments commencing in 2000 or any subsequent year may irrevocably elect to receive such distributions in shares of Common Stock if such an election is filed with the Plan Administrator at any time commencing January 1 of the final year of his or her service as a non-employee director and continuing until December 31 of the year preceding the date of the distribution of the first installment to such participant. For participants who elect to receive installment distributions in Common Stock pursuant to this Section 9.b, the amount of each installment shall be a fraction of the number of shares in the participant's Deferred Stock Account on the distribution date, taking into account any dividend payable on that date, the numerator of which is one and the denominator of which is the total number of installments elected (not to exceed ten) minus the number of installments previously paid (rounded down to the nearest whole share). Cash in lieu of any fractional share (based on the closing price per share of Common Stock reported on the consolidated tape of the New York Stock Exchange for the trading day immediately preceding the distribution date) shall be distributed with the final installment. For participants who do not make an effective election to receive installment distributions from their Deferred Stock Accounts in Common Stock pursuant to this Section 9.b, the amount of each payment to such a participant on each payment date elected, or deemed elected, by him or her, commencing March 1, 2000, and on each March 1 thereafter, shall be based on the value of his or her Deferred Stock Account on the payment date, taking into account any dividend payable on that day, using the closing price of the Common Stock as reported on the consolidated tape of the New York Stock Exchange for the trading day next preceding the payment date. The amount of an installment payment made in cash from a Deferred Stock Account on or after March 1, 2000, shall be a fraction of the value of the Account on the payment date, the numerator of which is one and the denominator of which is the total number of installments elected (not to exceed ten) minus the number of installments previously paid.
10. DEATH OF A PARTICIPANT. If a participant dies before receiving all payments to which he or she is entitled under the Plan, payment shall be made in accordance with the participant's designation of a beneficiary on a form provided for that purpose and delivered to and accepted by the Plan Administrator. In the absence of a valid designation, or if the designated beneficiary does not survive the participant, all remaining payments due hereunder shall be made as promptly as administratively practicable to such participant's estate.
11. NUMBER OF SHARES ISSUABLE UNDER THE PLAN. Subject to adjustment as provided in the next sentence, the maximum number of shares of
Common Stock that may be credited under the Plan is 600,000. If the Corporation shall at any time increase or decrease the number of its outstanding shares of Common Stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Common Stock, or through a stock split, subdivision, consolidation, combination, reclassification, or recapitalization involving the Common Stock, then the numbers, rights, and privileges of the shares issuable under the Plan shall be increased, decreased, or changed in like manner as if such shares had been issued and outstanding, fully paid, and nonassessable at the time of such occurrence.
12. NO GUARANTEE OF SERVICE. Participation in the Plan does not constitute a guarantee or contract of service as a director.
13. NONASSIGNABILITY. No right to receive payments under the Plan nor any shares of Common Stock credited to a participant's Deferred Stock Account shall be assignable or transferable by a participant other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"), Title I of the Employee Retirement Income Security Act ("ERISA"), or rules thereunder. The designation of a beneficiary by a participant pursuant to Section 5 does not constitute an assignment or transfer.
14. FUNDING. If the Corporation chooses to fund the credits to the Deferred Stock Accounts, the Corporation shall make contributions in cash or in shares of Common Stock to the trust described in Section 15. Any cash contributions shall be used by the trustee named in Section 15 to purchase shares of Common Stock within 10 business days after such deposit. Purchase of such shares may be made by the trustee in brokerage transactions or by private purchase, including purchase from the Corporation. All shares held by the trust shall be held in the name of the trustee.
15. TRUST FUND. Shares of Common Stock credited to Deferred Stock Accounts under the Plan may, in the sole discretion of the Corporation, be held and administered in trust (referred to as the "Trust Fund") in accordance with the terms of the Plan. The Trust Fund shall be held under a trust agreement between the Corporation and Marquette Bank Minneapolis, N.A. as trustee, or any duly appointed successor trustee. All Common Stock in the Trust Fund shall be held on a commingled basis and shall be subject to the claims of general creditors of the Corporation.
16. VOTING COMMON STOCK. If any credits made pursuant to the Plan
are, in the discretion of the Corporation, funded in a trust as described in
Section 15, the Common Stock held in trust shall be voted by the trustee in
its discretion; provided, however, that the participant may instruct the
trustee with respect to the voting of a number of shares determined by
multiplying a fraction, the numerator of which is the number of shares
credited to the participant's Deferred Stock Account and the denominator of
which is the total number of shares credited to all participants' Deferred
Stock Accounts, by the total number of shares held by the trustee for the
Plan. For purposes of this section, all numbers of shares shall be determined
as of the applicable record date.
17. UNSECURED OBLIGATION. Benefits payable under the Plan shall be an unsecured obligation of the Corporation.
18. ADMINISTRATION. The Plan shall be administered by the Corporation's senior human resources officer (the "Plan Administrator"), who shall have the authority to interpret the Plan and to adopt procedures for implementing the Plan.
19. AMENDMENT AND TERMINATION. The Board of Directors or the Board Affairs Committee, or any successor committee, of the Corporation's Board of Directors may at any time terminate, suspend, or amend this Plan; provided, however, that if at the time of any such proposed termination, suspension or amendment, any member of such committee does not satisfy the requirement applicable to committee approval contained in regulations of the Securities and Exchange Commission promulgated under Section 16 of the Securities Exchange Act of 1934, and applicable interpretations thereof, any such termination, suspension or amendment must be approved by the Board. No such action shall deprive any participant of any benefits to which he or she would have been entitled under the Plan if termination of the participant's service as a director had occurred on the day prior to the date such action was taken, unless agreed to by the participant.
20. CHANGE OF CONTROL. "Change of Control " shall mean either one of the following events:
(a) A third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the beneficial owner, directly or indirectly, of 25% or more of the combined voting power of the Corporation's outstanding voting securities ordinarily having the right to vote for the election of directors of the Corporation; or
(b) Individuals who constitute the Board of Directors of the Corporation as of April 27, 1992 (the "Incumbent Board") cease for any reason to constitute at least two-thirds thereof; provided that any person becoming a director subsequent to said date whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, shall be, for the purposes of this clause (b), considered as though such person were a member of the Incumbent Board.
Anything to the contrary herein notwithstanding, in the event of a Change of Control, credits to a participant's Deferred Stock Account and/or Deferred Cash Account, as the case may be, as of the business day immediately preceding the effective date of the transaction constituting the Change of Control shall be paid in full to the participant or the participant's beneficiary or estate, as the case may be, on such business day. For purposes of this Section 20, a participant's Deferred Stock Account shall be distributed in whole shares of Common Stock (together with cash in lieu of a fractional share).
21. GOVERNING LAW. The Plan and all determinations made and actions taken pursuant hereto shall be governed by and construed in accordance with the law of the State of Delaware.
22. EFFECTIVE DATE. The effective date of the Plan shall be the date of approval of the Plan by the holders of the Common Stock.
EXHIBIT 10(e)
NORWEST CORPORATION
DIRECTORS' FORMULA STOCK AWARD PLAN
(As amended and restated effective September 28, 1999)
l. PURPOSE. The purpose of the Norwest Corporation Directors' Formula Stock Award Plan (the "Plan") is to provide compensation in the form of shares of the Corporation's common stock, $1 2/3 par value per share ("Common Stock"), to non-employee members of the Board of Directors (the "Board") of the former Norwest Corporation and Wells Fargo & Company, as it is now known(the "Corporation"), in consideration for personal services rendered in their capacity as directors of the Corporation during the period from 1991 through 1998. The Plan is intended to aid in attracting and retaining individuals of outstanding abilities and skills for service on the Board.
2. ELIGIBILITY. Any person who (a) has served as a non-employee director of the Corporation during the calendar year preceding an Award Date (as defined below) and (b) is a non-employee director of the Corporation on the last day of such calendar year ("Eligible Non-Employee Director") was awarded shares of Common Stock determined as set forth in Section 3.
3. FORMULA AWARD. In consideration for past services rendered, on February 1 of each year from 1992 through 1999 (each, an "Award Date"), each Eligible Non-Employee Director who was a non-employee director of the Corporation during all of the preceding calendar year was awarded a number of shares of Common Stock (an "Award"). Each Eligible Non-Employee Director who was a non-employee director of the Corporation for less than all of the calendar year preceding an Award Date was awarded one-twelfth of an Award for each calendar month or portion thereof during which such person served as a non-employee director of the Corporation.
The fair market value was determined using the closing price of a share of Common Stock as reported on the consolidated tape of the New York Stock Exchange as of the Award Date. If the New York Stock Exchange was not open on the Award Date, the fair market value was determined using the closing price of a share of Common Stock as reported on the consolidated tape of the New York Stock Exchange as of the next preceding day on which the New York Stock Exchange was open.
4. DEFERRAL OF AWARDS. An Eligible Non-Employee Director may have elected to defer, in the form of shares of Common Stock, all or a portion of the Award for his or her service as a director for each calendar year during the period from 1993 through 1998 (the "Deferral Year") following the year in which the deferral election was made. Such election was made pursuant to Section 5.
5. ELECTIONS REGARDING PARTICIPATION AND DEFERRALS.
a. PARTICIPATION. An Eligible Non-Employee Director became a participant in the deferral provisions of the Plan by filing not later than December 15 of the year preceding the Deferral Year an irrevocable election with the Plan
Administrator (as defined in Section 16) on a form provided for that purpose. The election form specified an amount to be deferred expressed as a percentage of the Award, one of the payment options described in Sections 8 and 9, and the year in which amounts deferred shall be distributed in a lump sum pursuant to Section 8 or in which distribution in installments shall commence pursuant to Section 9. The deferral election was effective only with respect to the Award for the Deferral Year specified on the election form. A new deferral election form must have been filed for each Deferral Year. Every participant who may have elected the payment of any deferred compensation to be made to him or her or a beneficiary on February 28 in any year beginning with 2000 shall be deemed to have elected such payment to be made on the March 1 immediately following such February 28.
b. INITIAL DEFERRAL ELECTION OR INITIAL ELIGIBILITY. The initial deferral elections by Eligible Non-Employee Directors must have been made within 30 days of the date on which the Board of Directors of the Corporation approved the amendment of the Plan to include deferral provisions and applied to compensation to be earned subsequent to the deferral election. A new Eligible Non-Employee Director must have made a deferral election within 30 days of the date on which he or she became eligible to participate in the Plan.
c. DESIGNATION OF BENEFICIARY. A participant may from time to time designate a beneficiary or beneficiaries and/or revoke his or her beneficiary designation and file a new beneficiary designation with the Plan Administrator. The most recent such designation shall apply to all of the participant's account balances under the Plan.
6. DEFERRED STOCK ACCOUNT. On the Award Date, a participant received a credit to his or her stock account under the Plan (the "Deferred Stock Account"). The amount of the credit was the number of shares determined by multiplying the amount of the Award by the percentage specified on the election form (rounded down to the nearest whole share).
7. DIVIDEND CREDIT. Each time a dividend is paid on the Common Stock, a participant with a balance in his or her Deferred Stock Account shall receive a dividend credit to such Account. The amount of the dividend credit shall be the number of shares (rounded to the nearest one-hundredth of a share) determined by multiplying the dividend amount per share by the number of shares credited to the participant's Deferred Stock Account as of the record date for the dividend and, for dividends paid prior to December 1, 1999, dividing the product by the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange for the dividend payment date or, if the New York Stock Exchange was closed on the dividend payment date, the next preceding date on which it was open. For dividends paid on and after December 1, 1999, the product computed in the preceding sentence shall be divided by the closing price per share of the Common Stock reported on the consolidated tape of the New York Stock Exchange for the trading day next preceding the dividend payment date.
8. DISTRIBUTION OF DEFERRED STOCK ACCOUNTS IN A LUMP SUM. Unless a participant elected pursuant to Section 5 to receive deferrals hereunder in installments as described in Section 9, such deferrals shall be distributed in a lump sum in whole shares of Common Stock (together with cash in lieu of a fractional share) in the year
following termination of service as a director or such other year as elected by the participant pursuant to Section 5. All such distributions made in 1999 and prior years were made as of February 28 (or the next succeeding business day if such February 28 was not a business day) of the year elected by the participant pursuant to Section 5. Commencing in 2000, such distributions shall be made as of March 1 (or the next succeeding business day if such date is not a business day) of the calendar year following termination of service as a director or such other year elected by the participant pursuant to Section 5. Cash distributed in lieu of any fractional share in 1999 and prior years was determined based on the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the date of distribution or, if the New York Stock Exchange was closed on that date, the next preceding date on which it was open. Cash distributed in lieu of fractional shares in 2000 and subsequent years shall be determined based on the closing price per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the trading day immediately preceding the date of distribution.
9. DISTRIBUTION OF DEFERRED STOCK ACCOUNTS IN INSTALLMENTS. A participant may elect pursuant to Section 5 to receive deferrals hereunder distributed in shares of Common Stock in annual installments commencing in the calendar year following termination of service as a director or such other year as elected by the participant pursuant to Section 5. Installment distributions made in 1999 and prior years were made as of February 28, and installment distributions to be made in 2000 and subsequent years shall be made as of March 1 (or, in either case, the next succeeding business day if such date is not a business day).Installment distributions made in 1999 and prior years were made in shares of Common Stock based on the number of shares in the participant's Deferred Stock Account on January 31 prior to the distribution date. The amount of each installment for distributions made in 2000 and subsequent years shall be a fraction of the number of shares in the participant's Deferred Stock Account on the distribution date, taking into account any dividend payable on that date, the numerator of which is one and the denominator of which is the total number of installments elected (not to exceed ten) minus the number of installments previously paid (rounded down to the nearest whole share). Cash in lieu of any fractional share (based on the closing price per share of Common Stock reported on the consolidated tape of the New York Stock Exchange for the trading day immediately preceding the distribution date) shall be distributed with the final installment. Undistributed share balances remaining in the Deferred Stock Account shall receive dividend credits in accordance with Section 7.
10. DEATH OF A PARTICIPANT. If a participant dies before receiving all distributions to which he or she is entitled under the Plan, distribution of all shares remaining in the participant's Deferred Stock Account (together with cash in lieu of any fractional share) shall be made in accordance with the participant's designation of a beneficiary on a form provided for that purpose and delivered to and accepted by the Plan Administrator. In the absence of a valid designation, or if the designated beneficiary does not survive the participant, all remaining payments due hereunder shall be made as promptly as administratively practicable to such participant's estate.
11. SHARES AVAILABLE FOR AWARDS. No more than 200,000 shares of Common Stock may be awarded under the Plan. These shares may consist, in whole or in part, of authorized but unissued Common Stock or treasury Common Stock not reserved for any other purpose. If the Corporation shall at any time increase or decrease the number of its outstanding shares of Common Stock or change in any way the rights and privileges
of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Common Stock, or through a stock split, subdivision, consolidation, combination, reclassification, or recapitalization involving the Common Stock, then the numbers, rights, and privileges of the shares issuable under the Plan shall be increased, decreased, or changed in like manner as if such shares had been issued and outstanding, fully paid, and nonassessable at the time of such occurrence.
12. EFFECTIVE DATE. The Plan became effective on January 1, 1992.
13. NO GUARANTEE OF SERVICE. Participation in the Plan does not constitute a guarantee or contract of service as a director.
14. NON-ASSIGNABILITY. No right to receive an award hereunder shall be assignable or transferable by a Plan participant other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, Title I of the Employee Retirement Income Security Act ("ERISA"), or rules thereunder. The designation of a beneficiary by a participant pursuant to Section 5.c does not constitute an assignment or transfer.
15. UNSECURED OBLIGATION. All shares of Common Stock deferred pursuant to this Plan and credited to a Deferred Stock Account will be unsecured obligations of the Corporation. Each participant's right thereto will be as an unsecured general creditor of the Corporation.
16. ADMINISTRATION. The Plan shall be administered under such rules and procedures as shall be established from time to time by the Corporation's senior human resources officer (the "Plan Administrator").
17. AMENDMENT AND TERMINATION. The Plan may be amended, suspended or terminated by action of the Board of Directors or the Board Affairs Committee, or any successor committee, of the Corporation's Board of Directors; provided, however, if at the time of any such proposed amendment, suspension or termination, any member of such committee does not satisfy the requirement applicable to committee approval contained in regulations of the Securities and Exchange Commission promulgated under Section 16 of the Securities Exchange Act of 1934, and applicable interpretations thereof, any such amendment, suspension or termination must be approved by the Board. No such action shall deprive any participant of any benefits to which he or she would have been entitled under the Plan if termination of the participant's service as a director had occurred on the day prior to the date such action was taken, unless agreed to by the participant. The foregoing notwithstanding, however, the Plan automatically shall be terminated when all Common Stock subject to the Plan has been awarded, and if the Plan has been approved by the stockholders of the Corporation, any amendment shall be similarly approved if the amendment would:
(i) materially increase the benefits accruing to participants under the Plan;
(ii) materially increase the number of securities which may be issued under the Plan; or
(iii) materially modify the requirements as to eligibility for participation in the Plan.
18. GOVERNING LAW. The Plan and all determinations made and actions taken pursuant hereto shall be governed by and construed in accordance with the law of the State of Delaware.
4/28/92
6/4/93
7/27/93
4/26/94
2/28/95
4/23/96
10/2/97
1/26/99
9/28/99
| ARTICLE 9 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 9 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | JAN 01 1999 |
| PERIOD END | JUN 30 1999 |
| CASH | 12,011 |
| INT BEARING DEPOSITS | 0 |
| FED FUNDS SOLD | 1,556 |
| TRADING ASSETS | 2,326 |
| INVESTMENTS HELD FOR SALE | 36,906 |
| INVESTMENTS CARRYING | 0 |
| INVESTMENTS MARKET | 0 |
| LOANS | 114,709 |
| ALLOWANCE | 3,167 |
| TOTAL ASSETS | 207,060 |
| DEPOSITS | 131,557 |
| SHORT TERM | 19,248 |
| LIABILITIES OTHER | 8,377 |
| LONG TERM | 25,696 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 460 |
| COMMON | 2,777 |
| OTHER SE | 18,945 |
| TOTAL LIABILITIES AND EQUITY | 207,060 |
| INTEREST LOAN | 7,912 |
| INTEREST INVEST | 1,612 |
| INTEREST OTHER | 1,101 |
| INTEREST TOTAL | 10,625 |
| INTEREST DEPOSIT | 2,075 |
| INTEREST EXPENSE | 3,666 |
| INTEREST INCOME NET | 6,959 |
| LOAN LOSSES | 770 |
| SECURITIES GAINS | 19 |
| EXPENSE OTHER | 7,124 |
| INCOME PRETAX | 4,415 |
| INCOME PRE EXTRAORDINARY | 2,777 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 2,777 |
| EPS BASIC | 1.67 1 |
| EPS DILUTED | 1.65 |
| YIELD ACTUAL | 5.67 |
| LOANS NON | 697 |
| LOANS PAST | 466 |
| LOANS TROUBLED | 1 |
| LOANS PROBLEM | 0 |
| ALLOWANCE OPEN | 3,134 |
| CHARGE OFFS | 1,117 |
| RECOVERIES | 342 |
| ALLOWANCE CLOSE | 3,167 |
| ALLOWANCE DOMESTIC | 0 |
| ALLOWANCE FOREIGN | 0 |
| ALLOWANCE UNALLOCATED | 0 |
| 1 | AMOUNT REPRESENTS BASIC EARNINGS PER COMMON SHARE PURSUANT TO FAS 128. |
EXHIBIT 99(a)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
--------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
----------------- -----------------
(in millions) 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $1,533 $1,230 $4,415 $3,541
Fixed charges 1,298 1,304 3,765 3,885
------ ------ ------ ------
$2,831 $2,534 $8,180 $7,426
====== ====== ====== ======
Fixed charges (1)
Interest expense $1,259 $1,265 $3,666 $3,769
Estimated interest component of net rental expense 39 39 99 116
------ ------ ------ ------
$1,298 $1,304 $3,765 $3,885
====== ====== ====== ======
Ratio of earnings to fixed charges (2) 2.18 1.94 2.17 1.91
====== ====== ====== ======
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $1,533 $1,230 $4,415 $3,541
Fixed charges 619 516 1,690 1,545
------ ------ ------ ------
$2,152 $1,746 $6,105 $5,086
====== ====== ====== ======
Fixed charges:
Interest expense $1,259 $1,265 $3,666 $3,769
Less interest on deposits 679 788 2,075 2,340
Estimated interest component of net rental expense 39 39 99 116
------ ------ ------ ------
$ 619 $ 516 $1,690 $1,545
====== ====== ====== ======
Ratio of earnings to fixed charges (2) 3.48 3.38 3.61 3.29
====== ====== ====== ======
--------------------------------------------------------------------------------------------------
|
(1) As defined in Item 503(d) of Regulation S-K.
(2) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there was no change in net income,
the ratios would decline with an increase in the proportion of income which
is tax-exempt or, conversely, they would increase with a decrease in the
proportion of income which is tax-exempt. Second, even if there was no
change in net income, the ratios would decline if interest income and
interest expense increase by the same amount due to an increase in the
level of interest rates or, conversely, they would increase if interest
income and interest expense decrease by the same amount due to a decrease
in the level of interest rates.
EXHIBIT 99(b)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
----------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
----------------- -----------------
(in millions) 1999 1998 1999 1998
----------------------------------------------------------------------------------------------------------
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $1,533 $1,230 $4,415 $3,541
Fixed charges 1,298 1,304 3,765 3,885
------ ------ ------ ------
$2,831 $2,534 $8,180 $7,426
====== ====== ====== ======
Preferred dividend requirement $ 9 $ 9 $ 26 $ 26
Ratio of income before income tax expense to net income 1.59 1.66 1.59 1.65
------ ------ ------ ------
Preferred dividends (2) $ 14 $ 15 $ 41 $ 43
------ ------ ------ ------
Fixed charges (1):
Interest expense 1,259 1,265 3,666 3,769
Estimated interest component of net rental expense 39 39 99 116
------ ------ ------ ------
1,298 1,304 3,765 3,885
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Fixed charges and preferred dividends $1,312 $1,319 $3,806 $3,928
====== ====== ====== ======
Ratio of earnings to fixed charges and preferred dividends (3) 2.16 1.92 2.15 1.89
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EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $1,533 $1,230 $4,415 $3,541
Fixed charges 619 516 1,690 1,545
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$2,152 $1,746 $6,105 $5,086
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Preferred dividends (2) $ 14 $ 15 $ 41 $ 43
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Fixed charges:
Interest expense 1,259 1,265 3,666 3,769
Less interest on deposits 679 788 2,075 2,340
Estimated interest component of net rental expense 39 39 99 116
------ ------ ------ ------
619 516 1,690 1,545
------ ------ ------ ------
Fixed charges and preferred dividends $ 633 $ 531 $1,731 $1,588
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Ratio of earnings to fixed charges and preferred dividends (3) 3.40 3.29 3.53 3.20
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(1) As defined in Item 503(d) of Regulation S-K.
(2) The preferred dividends were increased to amounts representing the pretax
earnings that would be required to cover such dividend requirements.
(3) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there was no change in net income,
the ratios would decline with an increase in the proportion of income which
is tax-exempt or, conversely, they would increase with a decrease in the
proportion of income which is tax-exempt. Second, even if there was no
change in net income, the ratios would decline if interest income and
interest expense increase by the same amount due to an increase in the
level of interest rates or, conversely, they would increase if interest
income and interest expense decrease by the same amount due to a decrease
in the level of interest rates.